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Major changes in 2018 - Which is best for me Childcare Voucher Scheme Vs Tax-Free Childcare?


From the 4th October 2018 the well regarded Childcare Voucher Scheme will close to new applicants. If you already use Childcare Vouchers don’t panic as you won’t be affected. You can continue to use the scheme providing your employer continues to offer it and you remain employed with them. If it’s something you have been considering doing and will benefit you more than the Tax-Free Childcare, then don’t delay and join before October so you don’t lose out!

Top Tip: Running a Childcare Voucher Scheme through your limited company could save you money! Both your employee and you won’t pay National Insurance (NI) on the portion of income used for vouchers. Carrington can manage this for you and help you save.

What happens after October 2018?

A new scheme called Tax-Free Childcare comes into effect. The scheme works on a per-child basis rather than a per-parent basis. You need to fulfil certain criteria and if you are eligible you may get 20% of the annual childcare costs paid for by the Government. For every 80p you pay into a newly created ‘Childcare Account’ the government will contribute 20p. You could get up to £2,000 per year per child – the scheme only allows for a maximum of £10,000 per year childcare costs per child. The Tax-Free Childcare scheme is open to anyone who fits the criteria and not just to an employee of a company.

To be eligible for the Tax-Free Childcare scheme you must:

  • Have one or more children under the age of 12 who are living with you when the scheme commences. Foster children are not eligible.
  • Earn under £100,000 per year. If you are part of a couple, then this figure applies to both of you. If one of you earns more than £100,000 then as a couple, you can’t access the Tax-Free Childcare scheme.
  • You must not be claiming any tax credits or universal credit.

If you need to decide before October here is a comparison of the two schemes:

Childcare Vouchers win for:

  • Couples where one parent doesn’t work, as they’re not eligible for Tax-Free Childcare, but the employed parent is eligible for vouchers (provided their employer offers a scheme).
  • Basic-rate taxpayer parents with total childcare costs of £9,336 or less. Under this amount, the saving you make with Childcare Vouchers exceeds the saving you can make with Tax-Free Childcare.
  • Higher-rate taxpayer parents with total childcare costs of £6,252 or less. Under this amount, the saving you make with Childcare Vouchers exceeds the saving you can make with Tax-Free Childcare.
  • Higher earners, as anyone earning £100,000+ (or in a couple where one earns £100,000+) isn’t eligible for the scheme, whereas these high earners can get Childcare Vouchers.

Tax-Free Childcare wins for:

  • Self-employed people or couples who earn less than £100,000 each, as they’re eligible for Tax-Free Childcare, but can’t get Childcare Vouchers.
  • Parents with more than one child and high childcare costs, as the help available goes up with the number of children. There’s a limit for Childcare Vouchers which isn’t dependent on the number of children.

Top Tip: Use an Umbrella company? Carrington Umbrella is one of the few umbrella companies that offer a Childcare Voucher Scheme to contractors. Switch to us before October 2018 to avoid missing out! Visit https://carringtonumbrella.co.uk/ or contact us via email: contact@carringtonumbrella.co.uk  or call 0203 713 4530 for more information.