Tax-free childcare vs childcare vouchers – which one should parents use? – The Sun

CHILDCARE costs in the UK are among the most expensive in the world, but there is a new government scheme that parents can take advantage of to cut costs.

Confirmed in the Spring Budget earlier this month, the government is rolling out the Tax-Free Childcare scheme from April.

Chancellor Philip Hammond announced new childcare measures in the Spring Budget

Chancellor Philip Hammond announced new childcare measures in the Spring Budget

The scheme will run alongside, and eventually replace, the Childcare Vouchers scheme, which will close to new applicants from April 2018.

If you’re already a member of the vouchers scheme, you can continue to use it, but parents won’t be able to take advantage of both schemes.

So which should you choose?

We look at both schemes below, and weigh up the benefits for different families. A lot depends on how many kids you have, how much tax you pay, and how much you pay for childcare.

Tax-free childcare

The government will pay parents 20p for every 80p they spend on childcare, with a maximum contribution of £2,000 a year per child.



Two million households will be eligible for the tax-free childcare by the end of the year, Chancellor Phillip Hammond confirmed, including parents who are self-employed.

To qualify, parents will have to work 16 or more hours, and each earn at least £115, per week, but no more than £100,000 each per year (combined income in excess of £100,000 is fine).

The scheme is available for children up to the age of 12, or 17 for children with disabilities.

Parents can apply by opening an online account through Gov.uk, which they pay into, and which will then be topped up by the government.

Childcare vouchers

The current childcare scheme is offered to parents through their employers, allowing them to pay for childcare costs via salary sacrifice.

This means that you are paying for childcare out of your pre-tax and national insurance income.

The Tax-Free Childcare scheme will run alongside, and eventually replace, the Childcare Vouchers scheme

The Tax-Free Childcare scheme will run alongside, and eventually replace, the Childcare Vouchers scheme

For example, a basic-rate taxpayer can swap £1,000 of their salary, which after tax and national insurance is around £700 in your pay packet, for £1,000 in childcare vouchers.

This means you pocket an extra £300 for every £1,000 used towards childcare.

Basic-rate taxpayers can claim up to £243 of childcare vouchers each month (£55 per week), per parent, so two working parents could get £486 of vouchers each month.

Which scheme is best if you’re eligible for both?

According to Martin Lewis’ MoneySavingExpert website, the new Tax-Free Childcare scheme is the best option if you have lots of children and have high childcare costs.

This is because you get £2,000 per child with the Tax-Free Childcare scheme, so if you have four kids that’s £8,000.

preschool teacher

The costs of childcare such as nursery schools has rocketed in the past five years to an average £212 a week

With childcare vouchers you can save up to £930 per parent, per year, because of tax and National Insurance savings.

Even so, if you have fewer children and lower childcare costs, you’ll be better off with the childcare vouchers.

While you get 20 per cent off childcare costs with the Tax-Free Childcare scheme, you could get between 32 per cent and 47 per cent off with the vouchers, depending on your tax status, Martin Lewis says.

So, if you’ve got big costs Tax-Free Childcare is best, if you’ve got smaller costs, childcare vouchers win.

Also, bear in mind that the new scheme will only be available to parents with children up to the age of 12, whereas the old system is available for kids up to the age of 15.

CHILDREN aged three and four are entitled to 15 hours of free early education a week, and from September this will double to 30 hours a week – in a move that will save parents up to £5,000 per child. The 30 hours is only free for 38 weeks per year, rather than 52, and the hours must be spread over at least three days a week. To be eligible, both parents must be working, or the only parent in a one-parent family is working.  Each parent must have an annual income of less than £100,000. While not everyone is eligible for the additional 15 hours of free childcare, everyone will still receive the minimum 15 hours that is currently available.

Child benefit

Child Benefit is a tax-free benefit paid to most people with children under the age of 16 (or 20 if in full-time education) in the UK.

You do not need to have paid any National Insurance contributions to get Child Benefit and you can get it providing neither parent earns less than £50,000.

Parents will get £20.70 a week for the oldest child, and £13.70 a week for each subsequent children.

Child tax credit

If you’re on a low income you could be eligible for child tax credit for each child if they’re under the age of 16 (or 20 if in full-time education).

Dependent on your level of income, you can get up to £122.50 per week for one child and £210 for two or more children.

Budget 2017: Free childcare for three and four-year-olds to double to 30 hours from September

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