The old Childcare Voucher Scheme is still available as long as you sign up before April 2018, after which it will be closed to new applicants.
What is Tax Free Childcare?
It's a new government scheme designed to help working parents with the cost of childcare.
For every £8 you pay in, the government will add another £2, with a maximum saving of £2,000 per child each year to spend on childcare.
Here is more information on how the Tax Free Childcare scheme works.
Pros and cons of Tax Free Childcare
Benefit available per child
Available to self employed parents
Saves more if care costs are high
Can't get if claiming some benefits
Can't get if income is over £100k
Both parents must work to qualify
What are Childcare Vouchers?
They are offered through your employer and you use them to pay for your child's care. The cost is taken from your salary before income tax and national insurance are deducted.
You can buy up to £243 of vouchers each month, which works out as a maximum annual saving of £933 if you're a basic rate tax payer.
You need to set up a voucher account, and then your employer can order your vouchers through payroll every month. You'll usually receive them at the same time as your pay.
Pros and cons of Childcare Vouchers
No eligibility checks
You could save more
Both parents do not have to work
Employer may not offer it
Can't get if self employed
Saves less if care costs are high
Which is best for you?
Tax Free Childcare is best for...
Single parents with childcare costs of £5,000 or more: For example, if your costs are £5,000, you could save £1,000 under the Tax Free Childcare system compared to a maximum of £933 under the voucher scheme.
Families with two working parents and childcare costs over £9,500: For example, if your costs are £10,000, you could save £2,000 under the Tax Free Childcare system compared to a maximum of £1,866 under the voucher scheme.
Parents that are not eligible for the voucher scheme: For example, if you are self employed, or your employer does not offer the scheme.
As a general rule, you'll be better off using the Tax Free Childcare system if your childcare costs are:
The average cost of childcare for under 5s is £5,710, and £2,505 for a child at school per year*.
More than £4,650 a year as a single parent family
More than £9,300 a year as a two parent family
However, childcare vouchers are still best for...
Families with childcare costs less than the amounts above, or that do not meet the Tax Free Childcare eligibility criteria, for example:
Two parent families where one does not work
Families where either parent earns over £100,000
Families where either parent works less than 16 hours a week
What should you do?
Work out how much you spend on childcare each year to see which option would save you the most money.
Use the GOV.UK calculator to work out how much you could claim in childcare vouchers.
You can also use the Sodexo childcare savings calculator, which can tell you which option is best for your circumstances.
If you're not sure which is best, sign up for childcare vouchers with your employer before April 2018. That way you can keep your options open and have the choice of both schemes.
