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Tax-Free Childcare Vouchers: All You Need To Know

14/08/2014 16:52 | Updated 22 May 2015

Tax-Free Childcare: All you need to know

Earlier this year, the government made the announcement that it intends to overhaul the current childcare voucher system in the UK, and introduce its new Tax-Free Childcare system. Now those plans are in the news again, because of discussions over who will be eligible for financial help – so let's take a look at what the changes will mean for families...

What is the current system?

Currently, parents who are employed can take advantage of the childcare voucher scheme via their employer – but only if their employer has opted in to the scheme. Only about 5VIRTUAL-ArticleSidebar of the cost, up to a maximum of £1,200 per year, for each and every child under the age of five.

So the scheme will certainly benefit larger families. But to receive the full amount, they must be spending at least £6,000 per year, per child on care. Anything less than that, a lower amount can be received, worked out at a 20p saving per £1 spent.

Initially, the new scheme will allow parents to claim vouchers for each child up until the age of five. After the first year, it is planned that the scheme will gradually be extended, and eventually allow vouchers for children up to the age of 12 – which, the government says, should benefit 2.5 million families in England, Scotland, Wales and Northern Ireland, by 2020.

When will the new scheme be introduced?

Autumn 2015, at the earliest.

Who is eligible for the new scheme, and who is not?

This is where the topic gets a bit sticky because some think the new rules are unfair.

* In order for a family to receive childcare vouchers, BOTH parents must be working, at least 16 hours per week each. Each parent can earn up to £150,000 per year and still be eligible for the maximum benefit. The £150,000 cap seems high, and speculators have said it's in part to appease high earners whose child benefit was cut.

* Single parents are eligible, as long as they are working at least 16 hours per week and do not earn more than £150,000 per year.

• Self employed people will be included in the new scheme (under the current rules, they are not entitled to help).

* It has been announced more recently that parents who do not work because they are carers will be included.

* Also, the government wants to extend the scheme to allow parents on maternity/paternity benefit to claim. This means that a parent who is already receiving vouchers for a first child will continue to receive those vouchers if they take parental leave when they have another child.

• Families where one parent works, but the other does not, will not be eligible for childcare vouchers at all. This is causing some furore because mothers (or fathers) who choose to stay at home to care for the children / house will automatically make their family ineligible. Some groups are claiming it penalises stay at home mums – while George Osborne argues that to stay at home to care for children, rather than work, is a "lifestyle choice".

* Low income households receiving tax credits (or universal credit, when it it is fully rolled out) will not be eligible for this scheme. However, where both parents work at least 16 hours a week, up to 70 of your childcare costs (whereas on the new scheme it will be capped at 20%).

Conversely, if you have two or more children, and you both work, the new scheme might allow you to claim more, because the benefit is payable for each child.

Similarly, if one of you is working, and the other is self employed, it's possible that the new scheme would benefit you because, under the current rules, self employed people, or those running their own small business, do not receive vouchers.

It will be worth looking at your particular circumstances closer to the time, because if you are already using the current scheme in August 2015, you can opt to stick with it if it pays you more.

Another thing to bear in mind is that the new scheme, when it arrives, will only pay for children up until the age of five initially, whereas the current one pays money for children until the age of 15.

The government intends to expand the new scheme to allow vouchers for older children over a period of time. By 2020, it says families will be able to claim for children up to the age of 12.

Can I have my say?

Yes you can. The government is currently holding a consultation, which you can take part in here.

For more information, visit Gov.co.uk.

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