Tax-free Childcare scheme in the autumn will provide parents with savings of up to £2,000 per child, each year. This new scheme will see the closure of the current Childcare Voucher scheme, which enables each parent to save up to £933 per year, to new entrants after the autumn. Looking at the savings available, Tax-free Childcare seems to be the obvious scheme for parents to use to maximise on childcare savings. However, with Tax-free Childcare, the Government will be subsidising 20 percent of a child’s childcare, on costs of up to £10,000 per year. Therefore, to get maximum savings, parents must spend £8,000 per child, each year. To get the maximum savings using Childcare Vouchers, parents are only required to spend £2,916 each year. Both parents can use Childcare Vouchers; therefore savings could double to more than £1,800 at an outlay of only £5,832 per family to get maximum savings.

Childcare Voucher provider, Busy Bees Benefits, have been offering parents individual assessments of their circumstances to help them decide which scheme will be financially better for their families. From these, at least 80 percent of parents will be better off continuing to use Childcare Vouchers after Tax-free Childcare is launched in the autumn. Parents were asked to supply their child’s details including their age and childcare costs, as well as parents’ earnings. From the information provided, Busy Bees Benefits were able to calculate whether they would be financially better off using Childcare Vouchers or Tax-free Childcare. John Woodward, CEO said “we knew a lot of parents would be better off using Childcare Vouchers, however we were surprised at the figures we calculated. Childcare Vouchers already help over 500,000 working parents, it is now time for employers to increase their responsibility to employees by promoting their Childcare Voucher schemes to ensure all eligible parents can join the scheme and benefit from the savings before it’s too late.”

“Childcare Vouchers require less spend to get maximum savings as each parent needs to only pay out £2,916 per year to get the maximum saving of £933* per parent, whereas parents would need to spend £8,000 to get the maximum spend of £2,000 per child with Tax-free Childcare.” After Tax-free Childcare is introduced, the Childcare Voucher scheme will be closed to new entrants, which means that parents wanting more affordable childcare will only be able to use Tax-free Childcare to make savings.

To access Childcare Vouchers, employers need to be offering a scheme and employees need to register before the autumn it is recommended that all employees have one deduction of at least £10 before the end of August to guarantee access to Childcare Vouchers. Providing employees have one deduction each tax year, they will be able to remain on the Childcare Voucher scheme until they no longer require it. Employers should continue offering Childcare Vouchers to their employees to ensure they can still maximise savings for the organisation as they will continue to save up to £402 per employee on the scheme. Parents who will be better off using Childcare Vouchers include those falling into the following categories:

– Middle-low earning parents if not eligible for Working Families Tax Credit

– Basic Rate tax payers spending less than £9,336 on childcare each year

– Families with only one working parent

– Families with low childcare costs e.g. only using a few hours per week and before and after school clubs

– Families using Childcare Vouchers for extra curriculum activities through an Ofsted or Independent School provider

– Families using childcare for children over the age of 12

– Families who want to start saving towards childcare costs as soon as their baby is born

– Family run businesses where savings can be made on PAYE, Employers and Employee National Insurance and Corporation Tax

Families where one parent earns above £50,000, can use salary sacrifice to reduce their salary, which could enable them to receive more child benefit. To ensure your employees can access maximum savings through Childcare Vouchers and retain the right to choose which scheme is best for their family, set up a Childcare Voucher scheme now.