31 March 2017
Talk of the new government Tax-Free Childcare (TFC) scheme seems to have been around forever but, following legal wranglings, things are finally starting to get underway.
Originally due to launch in 2015 as the then coalition government’s way of returning parents to the workplace, it has now been confirmed that a staged roll-out will begin this April and that the scheme will be available to all qualifying families by the end of 2017.
TFC allows single parents or couples who are both working to claim up to £2,000 per child aged up to 12 towards the cost of annual childcare, with the government putting 20p towards every 80p the parents transfer to a dedicated online account for the purpose. As with the current Childcare Voucher scheme, the vouchers can be used with any childcare provider regulated by Ofsted in England, or the equivalent bodies in other parts of the UK.
However, couples where one parent is not working are ineligible, so are couples where either parent earns more than £100,000, works less than 16 hours a week or receives tax credits. Additionally, parents must not already be getting support through the existing Childcare Voucher scheme – which will be closed to new entrants from April 2018.
Those who are already signed up to Childcare Voucher schemes by April 2018 can, however, continue in them, and we strongly advise employers to encourage employees who haven’t yet joined one to do so. This is because in our opinion most people are likely to be better off sticking with Childcare Vouchers – which can save families with children aged under 15 up to £1,866 a year in tax and NI – than they are switching to TFC.
Although some parents, such as working couples with total childcare costs of over £9,500 a year, can be financially better off under TFC than under the Childcare Voucher scheme they could find themselves significantly worse off if their circumstances change because once a parent has been in TFC for three months they are not allowed to revert back to Childcare Vouchers. So if one partner loses their job or decides to give up work they could find themselves neither eligible for TFC or Childcare Vouchers.
Furthermore, some details about TFC still remain unclear and Childcare Vouchers are far more user-friendly from the parent’s perspective as deductions are made automatically from gross salary. TFC, on the other hand, involves accessing a government portal every three months, filling in endless details, waiting for approval and then eventually paying money by debit card. But, far worse still, the government is not even providing a telephone helpline to accompany this confusing online service!
It is also important to realise that TFC and Childcare Vouchers are not the only tax-efficient ways of funding childcare. Workplace Nursery Provision, which continues to receive little publicity despite having been available since 1988, can be a highly attractive option for working parents using nursery care for children aged up to 5.
As long as a number of key conditions are satisfied by the employer, nursery and scheme provider, Workplace Nursery Provision can allow an employee to save tax and NI on all their fees – not just the amount achievable with vouchers. If childcare costs are £1,500 a month, a higher-rate taxpayer can save as much as £6,516 a year using Workplace Nursery Provision and a basic-rate taxpayer £4,536 a year.
Workplace Nursery Provision scheme providers can also add value by discussing additional ways in which employers can help and support nurseries.
For example, Enjoy Benefits, which Chase de Vere is pleased to announce the formation of a new partnership with, reports that a client that makes specialist paint gave paint to the nursery for use in the playground for painting hopscotch, snakes and ladders and other colourful activities for the children. Some of their other clients have helped by giving nurseries old letter headed paper, stationery, boxes and sticky labels.
If you would like further information about our partnership with Enjoy Benefits or advice about the relative merits of TFC, Childcare Vouchers and Workplace Nursery Provision then please do not hesitate to contact us on 0345 300 6256.