A Cautious Welcome to New Childcare Tax-Free Scheme

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Change Ahead

Today the Government announced new plans to help families with the cost of childcare. Employers For Childcare Charitable Group has been tracking the costs of childcare over the past three years.  Our Childcare Cost survey results reveal that the cost of childcare can be equivalent to a second mortgage. A family of two children can pay on average just over £16,000 a year for full time childcare costs. 


Employers For Childcare Charitable Group has categorised the key points on the proposed changes revealed to date below:


  • The scheme worth £750m will not be introduced until the Autumn of 2015.


  • Eligible families will be given up to £1,200 a year for each child, up to a maximum of 20% of their total childcare costs.


  • To qualify, both parents, or one parent if they are raising children alone, will have to be in work and each must earn less than £150,000.  Two parents with a joint income of £299,999.98 will be eligible.


  • It will initially apply to children under the age of five.  The level of support will build up "over time" to include all children under 12.


  • Parents will be able to open an online voucher account with a voucher provider and have their payments topped up by the Government.


  • The new scheme will replace the current Childcare Voucher scheme after the general election in 2015. Parents who currently claim Childcare Vouchers will be able to remain in the scheme, although this will not be open to new claimants after the launch of the new scheme.


  • The current Childcare Voucher scheme is a tax and National Insurance saving scheme, typically worth about £900 a year for a basic-rate taxpayer. Where both parents work, families can save around £1,800 a year.


  • Childcare vouchers are available as an employee benefit to parents whose employer chooses to offer the scheme. The new policy is expected to be open to all working parents who meet the set criteria.


  • Through the current scheme employers also save on employee NICs, details on whether this will remain under the new scheme are unclear. 


  • Under the new proposals the support will also be offered to self-employed parents.


  • The current Childcare Voucher scheme will also continue to be open to new joiners until the tax-free Childcare scheme is available. Eligible recipients of Childcare Vouchers may choose to move into the new tax-free Childcare scheme if they wish, but will not be able to receive both.


  • It appears that under the new proposals the voucher will only be available to one earner.


  • To benefit from the scheme both parents will need to be in work which will exclude families with a single earner.


  • Families who receive support through tax credits and the new Universal Credit, which is due to be introduced in stages from next month until 2017, will not be eligible. Parents on Universal Credit, where both parents are working and earn more than the personal tax allowance, which is due to reach £10,000 by 2015, will be able to claim up to 85% of their childcare costs. Parents on Universal Credit who fail to earn this amount will be eligible for only 70% of the costs of childcare, the current amount on offer.


The Government will shortly consult on the detail of the new tax-free childcare scheme, including how employers could continue to play a role in supporting their employees with childcare costs within the new system.  


Marie Marin CEO of Employers For Childcare Charitable Group cautiously welcomed the proposals:

“The information received so far tells us that we will see an increase in the amount of help that parents will receive with their childcare costs, which we welcome.  However, we need more detail on the proposals to ensure that they will ultimately result in better savings for parents than through the current Childcare Voucher Scheme.  So far the news is positive however there will be some losers too. The devil will be in the detail.


We are concerned that support will initially only be available to children under the age of five - with Childcare Vouchers parents with children under the age of 15 are eligible for support.  In addition to this, two parent households with a single earner will not be eligible, both parents have to work. Also, families claiming childcare assistance under Universal Credit will have to meet the qualifying conditions, if they do not they will receive less support than a family jointly earning up to £300,000”.


Employers For Childcare Charitable Group will play an active role in the consultation once it is announced, seeking the views of parents and employers to form a detailed response. As further information becomes available on the new proposals we will endeavor to share this on our website, Facebook page and Twitter account. Contact Employers For Childcare Charitable Group on Freephone 0800 028 6538 or email info@employersforchildcare.org.


Employers For Childcare Charitable Group have put together a summary table comparing the current Childcare Voucher scheme with the proposed changes. For an analysis of who would be better sticking with Childcare Vouchers and who would be better moving to the new scheme visit moneysavingexpert.com.


You can find out more about how the new scheme will work on the HM Treasury website.


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