05 Feb 2018

Essential knowledge: Changes to childcare voucher schemes

For many parents, or parents to be, something important is coming. On the 6th April 2018 Childcare Vouchers (CCVs) will change under government legislation and you will no longer be able to join your workplace Childcare Vouchers Scheme. Instead you will be able to join the government’s Tax-Free Childcare scheme which is not an employer supported form of childcare.

This is a big change for many parents, with considerable differences between each scheme. It is now the time for parents to choose whether they want to continue with their existing scheme, or switch to the new government scheme. You can switch over to the Tax-Free Childcare at any time, even after 6^th April. But, consider that you may not be able to change back if it isn’t to your liking. So weigh up your options carefully.

Does your employer offer a CCV scheme?

The existing CCV scheme allows parents to elect to take part of their salary as childcare vouchers through a scheme set up by their employer. This usually operates through salary sacrifice. With the amount you can elect to take in vouchers free from tax and NI contributions, saving you money.

The amount of vouchers you can elect to receive and the savings you make depend on your tax band:

	Weekly tax exempt amount	Monthly tax exempt amount	Annual savings
Basic rate taxpayers	£55	£243	£933
Higher rate taxpayers	£28	£124	£623
Additional rate taxpayers	£25	£110	£623

CCV can then be used to cover the cost of registered and approved childcare services.

If your employer offers this benefit, then many parents may currently be in the CCV scheme or considering joining. If you are unsure whether your employer currently offers this scheme, check with your HR department to see if it is available to you.

Check out the differences

There are some key differences between CCV and the new Tax-Free Childcare scheme. These are worth considering when deciding which scheme is best suited to you:

CCV	Tax-Free Childcare (New Government Scheme)
You can receive up to £2,916 of tax and NI free childcare vouchers. Both you and your partner (if their employer offers a CCV scheme) can take out CCVs, providing a maximum annual voucher total of £5,832. Deductions via Salary Sacrifice would provide you with a combined tax and NI saving of up to £1,866.	The new government scheme works differently. The government will contribute 20% on top of your own payments into the scheme. This is capped at £10,000. For example, if you pay in £8,000 the government will contribute £2,000.
Capped per parent (£2,916 each).	Registered per child (Up to £10,000 per child).
Can be used for children under 16, or under 17 if they have a registered disability*	Can be used for children under 12 (or under 17 if registered with a disability) who are usually living with you.
Payment is taken directly from your payroll before Tax and NI deductions.	You will have to pay into the government Scheme directly, after you have received your salary.
Limited to parents working for a company that offers a childcare vouchers scheme.	No employer limitations. Self-employed individuals or even additional carers can pay into the scheme.
You can claim even if one parent is not working.	Registered per household where all parents are working; both parents if they live together / a single parent / or one parent with parental responsibility.
No minimum working hours.	If over the age of 21** both parents (or a single parent) must earn at least £120/week (16 hours at the national minimum wage)
No limit on earnings, but there are restrictions dependant on your tax-rate (see above)	If either parent earns over £100,000 per year, you are not eligible for the scheme.

Unfortunately, you cannot be in both schemes at the same time.

So what does this mean for you?

In short, if the current CCV scheme is more suitable for you, make sure you make the most of it by ensuring you join the scheme before the deadline. If you join the CCV scheme before the deadline, you can continue to benefit from the scheme for as long as you qualify. Remember if you change your employer after the April deadline, you will no longer be able to participate in an employer scheme. You will have to transfer over to the new Tax-Free Childcare scheme.

Note: Some savvy employees, that qualify for childcare vouchers but don’t want to take full advantage of the scheme until a later date, are choosing to take the minimum voucher amount now to ensure they don’t miss the deadline. CCVs typically have a long shelf life, so they can be used at a later date when you expect to incur higher childcare costs (e.g. summer holidays). So, even if you are not using them now, you can build up a pot to use when appropriate. However, you can only join the scheme once your child is born.

CCVs are typically an anytime benefit, but check availability with your employer. In April, if the government scheme looks more suited to you, you can simply inform your employer that you wish to opt out of the CCV scheme then move over to the new government scheme.

Let’s review your current situation

If you still need further input on making your scheme choice, check out the ‘better off calculator’ from gov.uk.

Remember, while the deadline to join the CCV scheme is the 6^th April, this is for a deduction to your salary. Therefore, for those of you on a monthly salary you will need to have had a deduction from your March pay, which in real-terms brings forward the actual deadline to a February selection which means making a decision now.

This article was provided by Zest.