As a working parent, finding the right childcare solution can be challenging, and it can be even more difficult to navigate the different government schemes that are available to help with the cost. In this article, we will explore two popular childcare schemes in the UK – the Childcare Voucher Scheme and Tax-Free Childcare – and compare the benefits and drawbacks of each.
What is the Childcare Voucher Scheme?
The Childcare Voucher Scheme was introduced in 2005 to help working parents pay for childcare. It allowed employers to provide their employees with childcare vouchers that are exempt from tax and National Insurance contributions up to a certain limit. The vouchers could be used to pay for registered childcare providers, such as nurseries, childminders, and after-school clubs.
What is Tax-Free Childcare?
Tax-Free Childcare is a newer scheme that was introduced in 2017. It provides working parents with a government top-up of 20% on their childcare costs, up to a maximum of £2,000 per child per year. The scheme is available to all working parents, including the self-employed, and it can be used to pay for a wider range of childcare providers. Comparison of the Childcare Voucher Scheme and Tax-Free Childcare.
The Childcare Voucher Scheme was only available to employees who were enrolled before October 2018. However, those who enrolled before this date can continue to use the scheme as long as they remain with the same employer. Tax-Free Childcare, on the other hand, is available to all working parents, regardless of their employer or employment status.
- Maximum Amount
The maximum amount that can be saved through the Childcare Voucher Scheme depends on the employee’s tax bracket and the number of children they have. The maximum annual amount is £243 per month for basic rate taxpayers, £124 per month for higher rate taxpayers, and £110 per month for additional rate taxpayers. Tax-Free Childcare provides a 20% top-up on childcare costs up to a maximum of £2,000 per child per year.
The Childcare Voucher Scheme is a salary sacrifice scheme, which means that the employee gives up part of their salary in exchange for the vouchers. Tax-Free Childcare, on the other hand, requires the parent to set up an online account and make payments directly to their childcare provider. The government then adds a 20% top-up to the account.
- Expiry Date
The Childcare Voucher Scheme closed to new entrants in October 2018, but those who are already enrolled can continue to use the scheme. Tax-Free Childcare, on the other hand, has no expiry date and is available to all working parents.
The Childcare Voucher Scheme can only be used to pay for registered childcare providers, such as nurseries, childminders, and after-school clubs. Tax-Free Childcare, on the other hand, can be used to pay for a wider range of childcare providers.
Also Read : How To Change Your Accountant In UK & Bookkeeper Bournemouth
Both the Childcare Voucher Scheme and Tax-Free Childcare have their benefits and drawbacks. The Childcare Voucher Scheme may be more suitable for those who are already enrolled and have young children attending registered childcare providers. Tax-Free Childcare, on the other hand, is more flexible and available to all working parents, regardless of their employment status or employer. Ultimately, the best scheme for you will depend on your personal circumstances and childcare needs. It’s worth researching both schemes carefully and seeking professional advice if you’re unsure which one is right for you.