Childcare voucher alternative, tax-free childcare alternative

Childcare Vouchers & Tax-free childcare

Childcare costs are highest between the time a parent returns to work and when Government funding becomes available, which is typically the term after a child’s third birthday.

Childcare voucher, tax-free childcare


Unfortunately, childcare costs in the UK are some of the highest in the world.  There is support available but it comes in multiple forms, which makes it difficult for parents to navigate and it’s wrapped up in eligibility criteria, which means it’s not available to everyone.

This article takes a look at the childcare voucher and tax-free childcare schemes.


Childcare Vouchers.

First up, let’s deal with childcare vouchers.

To be eligible for childcare vouchers, you must have joined a voucher scheme before or on 4th October 2018.  If you didn’t, then this option is no longer available to you.

If you are currently part of a childcare voucher scheme, then you can take up to a maximum of £55 per week or £243 per week (for a basic rate taxpayer), before any tax deductions are made, to help you pay for the cost of childcare.

Childcare vouchers can ONLY be used with a registered childcare provider, such as a nursery or childminder and can be used up until your children are 15 or 16 if they are registered disabled.

It’s worth noting that if you are part of a scheme and change employers, you will not be able to join your new employers’ scheme, assuming they still offer one.


Tax-Free Childcare.

Tax-free childcare is the Government’s new scheme, to help parents meet the ever increasing cost of childcare.

The scheme works by providing you with an extra 20% on top of whatever you have saved into your online account.  This sounds great but there are eligibility criteria attached, which weren’t there under the childcare voucher scheme.  However, one significant change is that the self-employed can access tax-free childcare, they had previously been excluded under the childcare voucher scheme.

Eligibility Criteria.

You’re in if:

  • Both parents work or a sole parent is working
  • Both parents earn over £125 per week
  • Your children are under 12 or 17 if disabled

You’re out if:

  • One parent doesn’t work or is studying
  • Either parent earns over £100,000
  • If your child does not usually live with you

Tax-free childcare can ONLY be used with a registered childcare provider, such as a nursery or childminder and can be used up until your children are 12 or 17 if they are registered disabled.

How the scheme works.

The scheme works on a per child basis.

You need to register and set up an online account.

You then pay money into your account each month, after which the Government will give you a 20% top up, up to a maximum of £500 every 3 months, which equates to £2,000 per year.

You will then be able to pay your registered childcare provider directly from your account.

A few more do’s and don’ts.

Do.

Tax-free childcare can be used in conjunction with the 15 & 30 free hours scheme.

Don’t.

Tax-free childcare cannot be used in conjunction with Universal credit, Tax credits or childcare vouchers.


childcare vouchers, tax-free childcare

It’s worth noting that the initial take up of tax-free childcare has been so low that the Government returned to the Treasury, over £600 million of funding, that had been allocated to support the scheme.  You can read more about this and the concerns it has raised, regarding the Government’s commitment to early year’s education, on the pre-school alliance website.


Need further information?

An invaluable resource to check your eligibility and to understand the various childcare support schemes further can be found on the Government’s childcare choices website.

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