Increasing demand for Childcare Vouchers despite recent introduction of Tax-Free Childcare support.

Busy Bees Benefits continues to see an increased demand for its Childcare Voucher scheme from employers and their staff despite the recent introduction of the government’s new Tax-Free Childcare support.  Childcare Voucher are a government-supported scheme which was launched in the late 90s and is designed to make childcare more affordable for working parents receiving their vouchers instead of part of their salary.

With Childcare Vouchers, basic rate taxpayers can salary sacrifice up to £55 per week, generating savings of £933 per parent annually. Higher rate taxpayers can salary sacrifice up to £28 per week, saving up to £623 per parent per year. One in five British parents using Childcare Vouchers say that they are the reason why they or their partner can remain in work (CVPA, November 2012).

The government has started to introduce its new form of childcare support in 2017 called Tax-Free Childcare. Childcare Vouchers will remain open to new entrants until April 2018 whilst the new scheme is rolled out. Importantly, existing users of vouchers will have a choice between the two schemes up until April 2018.

Wojciech Dochan, Managing Director of Busy Bees Benefits, said,

“We have been contacted by many of our employers asking us for advice in terms of their employees about the new Tax-Free Childcare support VS Childcare Vouchers and from the hundreds of employee assessments we have carried out we have found that 80% of working parents will still be better off using Childcare Vouchers compared to the new Tax-Free Childcare support.   Our aim at Busy Bees Benefits is always to provide the right support and service to all of our customers. It is for this reason that we carry out on-going research and feedback on our services and the needs of all of our customers”

 

What are the disadvantages of tax free childcare compared with childcare vouchers?

The eligibility requirements for vouchers and Tax-Free Childcare however are different – you won’t be able to claim Tax-Free Childcare unless all parents in a household are working or if you are in receipt of tax credits. Vouchers can be used for children up to 1st September following their 15th birthday, but Tax-free Childcare will only be available for children up to 1st September following their 11th birthday, or 16th birthday if they are disabled.

Furthermore, there are some families who will lose money under Tax-Free Childcare, compared to vouchers. While families will be entitled to claim up to £2,000 in support with Tax-Free Childcare, the governments own figures show that on average families will only benefit by £600.

 

How does the new tax free childcare scheme work?

Tax-Free Childcare will give parents a government top-up of 20% on their childcare spend, up to the value of £2,000 per child per year, based on childcare costs of a maximum of £10,000. Parents of disabled children will benefit from £4,000 per child per year, based on childcare costs of a maximum of £20,000 per child per year.

The table below, created by the Childcare Voucher Providers Association highlights the main advantages between the two schemes:

Circumstances Maximum benefit to family using the:

Childcare Voucher Scheme

Benefit to family under the:

Tax-Free Childcare

Difference
One parent working (basic rate taxpayer), one parent not working. £933 Not eligible +£933 under vouchers
Two parents working – both basic rate taxpayers.

Childcare spends of £4,000 per year on one child.

£1,866 £800 +£1,066 under vouchers
Two parents working – both basic rate taxpayers.

Childcare spends of £8,000 per year on two children.

£1,866 £1,600 +£266 under vouchers
Two parents working – both basic rate taxpayers.

Childcare spends of £10,800 on one child.

£1,866 £2,000 +£134 under Tax-free Childcare
Two parents working – both higher rate taxpayers.

Childcare spends of £6,000 per year on one child.

£1,246 £1,200 +£46 under vouchers
Two parents working – both higher rate taxpayers.

Spending £1,000 per year on childcare for a child aged between 12 and 15.

£1,246 Not eligible +£1,246 under vouchers
Two parents working – both additional rate taxpayers. Childcare spends of £6,000 per year on two children. £1,246 Not eligible +£1,244 under vouchers
Self-employed single parent, spending £10,800 on childcare per year on one child. Not eligible £2,000 +£2,000 under Tax-free Childcare

 

Author: Editorial Team

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