Childcare Vouchers Vs Tax Free Childcare: What's The Difference?

19 February 2015

Tax-Free Childcare vs Childcare Vouchers The news isn't something that makes me laugh very often, but I will admit to being slightly amused at the headlining news bulletin when I switched the radio on this morning: "For many families, it doesn't actually pay to go to work due to the cost of childcare", the newscaster said. I was waiting for the rest of the sentence, because in 5 years as a parent, this has come up again and again, and I can hardly imagine that it comes as news to anyone!

It seems the only way that a lot of my friends go to work every day, is by having family members that look after their children for at least one or two days of the week. Another friend goes to work in London every day, and her childcare on a 4 and 1 year old is so much, she pays more on childcare, what with extra hours to cover her commute and all that, than I was earning working full time in a pretty decent job!

Right now, Childcare Vouchers are available from employers to enable you to sacrifice part of your salary (up to £243 per month) in exchange for Childcare Vouchers which are used to pay your childcare provider. As they are taken directly from your wages, you do not pay any tax and National Insurance on the amount you have deducted, providing you with savings of up to £933 per year. Both parents can join their employer’s Childcare Voucher scheme, potentially saving over £1,800 for your family. However, in the autumn, the Government is introducing a new Tax-free Childcare scheme, which will enable working parents to have 20% of their childcare costs subsidised. This can provide savings of up to £2,000 per child, each year.

After Tax-free Childcare is implemented, Childcare Vouchers will only be available to those already using them; no new joiners will be accepted to use the scheme. However, due to the eligibility criteria for Tax-free Childcare, many parents will actually be better off using Childcare Vouchers - which surely leaves those families right back at the point of childcare costs making going to work rather futile.

So what are the actual differences? 

To be able to claim the maximum savings through Tax-free Childcare, your child care has to cost over £8,000 per year. Whereas, to access the maximum savings through Childcare Vouchers, each parent only has to be spending £2,916 per year. So many parents who are already using Childcare Vouchers, will be better off sticking with them, especially if you're not eligible for Working Families Tax Credit, have only one working parent in the family, or have low childcare costs among others.

The main thing to remember is that once you leave the Childcare Vouchers scheme, you can't go back to it, and if you've checked the eligibility for Tax-Free Childcare, and think you'll be better off on Childcare Vouchers, get on the scheme NOW. From April 2015, you only need to have a deduction for as little as £10 to retain your right to continue to use Childcare Vouchers if you wish and to choose the scheme which is best for you when the time comes.

It all seems a little complicated, but the bottom line is that you need to look at the two schemes, and see which one will work best for your family, and make a decision soon.  To help you, download the free Guide For Parents: Changes To Childcare Funding.

TOPICS:   Childcare and Support

2 comments

  • mrssingleton
    Really intrested in this,how and what do I have to do?
  • susanmis
    Quote: "To be able to claim savings through Tax-free Childcare, your child care has to cost over £8,000 per year" I think what you mean is for it to be more beneficial to be using the new scheme vs the old childcare vouchers scheme then your childcare would have to cost more than £8k a year? If you don't already have childcare vouchers, then you will achieve savings through the new tax free childcare scheme no matter what you childcare costs - for every pound that you spend you get 20% tax relief. EDIT: Thank you for amending this point in your text - makes much more sense now!

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