Tax-free childcare accounts will gradually replace childcare voucher schemes as no new schemes could be set up after 4 October 2018.

If you’re currently using a voucher scheme, you will continue to be eligible until your child is aged 16. This is however, provided that your employer is willing to continue operating the scheme.

Many organisations provided the vouchers by way of salary sacrifice and there were tax and NIC advantages for both employers and employees. Despite the PAYE and NIC advantages, not all employers provided childcare vouchers. Depending upon when they joined the voucher scheme, employees could be provided with vouchers worth up to £55 a week (£2,860 p.a.) free of tax and NICs.

You can head to the website to find out more about childcare vouchers and other employer schemes.


Why are childcare voucher schemes coming to an end?

With many employees working from home during the pandemic and hybrid working now commonplace, many families found that they weren’t using all of their vouchers. As a result, many chose to leave the scheme and use the Government’s Tax-Free Childcare account instead.

Please note that this scheme is generally only available to pay for care for children up to age 12.

Which scheme you’re better off with will of course depend on your personal situation. You can use the Government’s childcare calculator to work out which type of support is best for you.


Tax-free childcare accounts are also available for self-employed workers

A major benefit of Tax-Free Childcare accounts is that they’re available to self-employed workers as well as to employees.

The system operates by topping up savings of up to £8,000 per child by 25%, potentially an extra £2,000 from the Government to spend on qualifying childcare. The account can be used to pay nursery fees, breakfast clubs, after-school clubs and registered childminders.


Am I eligible for a Tax-Free Childcare account?

To be eligible, the parent generally needs to be working and earning at least the National Minimum Wage or Living Wage for 16 hours a week on average. In a three-month period, they need to earn at least £1,976 and will not be eligible if their (or their partner’s) adjusted net income is more than £100,000 a year.

Please note that the two schemes are mutually exclusive, and employers must stop giving their employees childcare vouchers with income tax and NIC relief if the employee informs them that they’ve started using the Tax-Free Childcare scheme.

Employees must notify their employer within 90 days of their application for a Tax-Free Childcare account. The employer may need to stop or change the employee’s salary sacrifice arrangement and must also update the employee’s contract and payroll.


For more information about Tax-Free Childcare accounts, get in touch and we’ll be happy to help.


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