It is still possible to join up for Childcare Vouchers before Tax-Free Childcare is introduced?
Childcare is a very real concern for many of us, whether we are employees, work for ourselves, or even if we have employees with children. From 2017, the existing Childcare Vouchers Scheme (CCV) will be closed to new joiners. It is being replaced by the new Government Tax-Free Childcare (TFC) scheme. However, the new scheme is not the best option for everyone, so it’s worth going through the two options now, while there is still time to join up for Childcare Vouchers.
What’s the difference between them?
Tax-Free Childcare (TFC)
Tax-Free Childcare (TFC) is a scheme that allows a parent to save 20% of their childcare costs. It works by the government topping up 20p to every payment by the parent of 80p for childcare, up to £10,000 per year. So if a parent had £10,000 of childcare costs every year, they would pay £8,000 and the government would put in the remaining £2,000. The savings apply per child, so families with more than one child, stand to gain more in savings. There is a minimum wage requirement applied and parents will have to work for at least 8 hours on the minimum wage (or more) to qualify.
Who will qualify for TFC?
Single-parent families where the parent works and two-parent families with two earners will qualify for the scheme, but two-parent families who only have one earner are not eligible for TFC. If you are self-employed you will qualify as long as you meet the other requirements.
Childcare Vouchers (CCV)
Childcare Vouchers (CCVs) works through a salary sacrifice scheme. This means that an agreed amount of your salary (up to £55 per week or £243 a month) is set aside each month or week, on which the employer pays no NI and the employee pays no NI or tax. An employee’s remaining wages are greater after paying for childcare with vouchers rather than with cash.
Unlike TFC, both parents can claim CCVs if their employers are registered with the scheme. Though how much you can save depends on how much tax and NI you pay, each parent that takes their maximum allowance can save up to £1,196 per year. However, CCVs are not available for the self-employed.
Who qualifies for CCVs?
CCVs are available for all working parents via their company’s if they signed up for the scheme. Any company can sign up for the scheme. CCVs are not available for the self-employed.
As a general guideline, families with two working parents and one child would be better off with CCVs since they can double their savings per parent and families with two or more children will probably make greater savings through TFC.
So what should you do now?
Well, CCVs will no longer be available to new joiners once TFC is introduced in 2017, but you can still register for them now. So if CCVs seem like they will be better for you, it’s essential that you register for them immediately, before you are locked out.
As long as you are in the scheme before 2017, you will be able to continue with it until you either no longer have children of eligible age, change jobs, stop getting vouchers for more than one year, or start receiving TFC, as you can only qualify for one scheme or the other.
The best advice for parents is to start receiving CCVs now, even if it’s the minimum value, to continue to be eligible for them, that way you can decide what will be the best option for your family in 2017
How does this affect employers?
Well, first and foremost, the CCVs system offer an NI saving to employers for every employee who receives the child care vouchers.
However, a less obvious benefit to employers of CCV is employee retention for employees who are better off under that scheme. Since employees who change jobs after TFC is introduced will no longer be able to claim CCVs in their new job, and will therefore only be able to claim government support for childcare if they qualify for the TFC criteria.