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The ‘Old Scheme’.

In 1989, the Childcare Voucher Scheme (also known as CCV or Employer-supported childcare scheme (ESC)) was first introduced by the UK Government to help working parents afford childcare more easily and target those seeking employment but are unable to work due to the high costs of childcare.

So, how do they work? Childcare Vouchers work through a salary sacrifice scheme which means parents swap part of their salary (tax and National Insurance free!!) to contribute towards their childcare costs. For example, say you give up £1,000 of your salary, after tax and NI that’s only worth around £700 to you. In return, you will receive £1000 worth of vouchers so that’s an extra £300 worth of childcare vouchers practically free! As long as both parents are working and their salaries do not exceed £150,000 each, they are each eligible for the childcare vouchers.

EmBlogorigiBasic-rate taxpayers can pay for up to £243 of childcare with the vouchers each month (£55 per week) PER PARENT!! That’s £486 each month for two working parents and a tax/NI saving of £1860! This also applied to higher-rate taxpayers if you joined the scheme before April 5 2011. If you joined the scheme after this date, higher-rate taxpayers can pay up to £28 per week (a saving of £630) whilst top-rate taxpayers can pay up to £25 per week (a saving of £570). Self-employed parents are NOT able to receive vouchers as you must be classed as an employee.

Currently you can claim Childcare Vouchers for children up to the age of 15 years old (or 16 years old if disabled). Not only can they be used on your typical childcare but on afterschool clubs, holiday camps, swimming lessons, sports clubs, dance classes, private tutors and more (as long as they are regulated).

The only downside to this scheme is that whether you have 1 child or 10(!!), you are not entitled to pay for any further vouchers and therefore if your childcare costs exceed that of the vouchers, you will have to pay your childminder directly. Please also be mindful that you are unable to withdraw your money once transferred into vouchers, so be careful not to convert more vouchers than you will need. As well as this, relatives who childmind are not able to receive the vouchers. The provider must be registered.

In order to receive the vouchers, check your employer runs the scheme. Most large companies run the CCV scheme including banks such as Lloyds, NHS trusts and Ministry of Defence departments.

If your employer doesn’t offer the scheme, it is worth speaking to them as the scheme doesn’t cost them any money, in fact, quite the opposite. As they don’t pay employer’s national insurance on the amount of salary sacrificed for vouchers, it will actually reduce their costs! Bonus!! They can either operate the scheme themselves or use a voucher company. This will save them time but they will be charged a small fee however, this should still be less than the firm gains in NI, so they should still profit from the scheme. These voucher companies include Kiddivouchers who donate 5% of all profits to charities.

The ‘New’ Scheme.

The Government have recently introduced a new scheme called the “Tax-Free Childcare (TFC) scheme”. This was meant to be available from autumn this year (2015), but has been delayed to 2017.

So how does this scheme work? Firstly, your employer is not involved. You will pay directly into an online account run by National Savings & Investments. For, every 80p you spend on childcare, the government will contribute 20p. The scheme is available for up to £10,000 of childcare costs per child per year and there is no limit on how many children you can claim for. This scheme is now also available for self-employed parents – hurrah!!

In the case of a parent claiming the full £10,000, he or she will pay £8,000 and the government will contribute £2,000 (previously the cap was £6,000, meaning a £1,200 tax subsidy). You are also able to withdraw money should you need to however, the money the Government has contributed will be reclaimed by them (damn!).

As soon as this launches, no new entrants will be able to join the old childcare voucher scheme. Although, if you are already a member, you will be able to continue for as long as your employer runs the scheme, or as long as you stay with your employer. If you move employment after early 2017, you will be considered to have left the current scheme and be forced to switch to the proposed TFC scheme.

The scheme will work in quarterly entitlement periods – once eligible, parents will continue to be entitled to support for three months, regardless of any changes in circumstances. They can pay in a lump sum of £2,000 each quarter and get £500 from the government in one sum, or make monthly payments. You must reconfirm that you still qualify for the scheme every three months by reapplying.

Higher-rate tax-payers qualify for the same amount as basic-rate tax payers. This has caused controversy in the respect that couples earning up to £300,000 between them are eligible for the scheme, but parents receiving other benefits are not eligible. Instead the government will meet 85% of the costs of childcare for parents on universal credit, provided that both parents are working and earn more than the personal tax allowance

CCV v TFC

Under the original plans for the new scheme, all working couples with one child would have been worse off, but by raising the cap on costs from £6,000 to £10,000 the government has ensured that some parents can claim more.

It depends on your circumstances which scheme is better for you (just remember, TFC isn’t available quite yet!).  I have included a table below which summaries the winners and losers of the new scheme.

Winners Losers
Working single parents with childcare costs over £5,000 a year Two parent families where one parent does not work – they will not be eligible.
Basic-rate tax paying parents where both parents work, and have total childcare costs over £9,500 a year. Two parent families with one child where both work will tend to be better off with the existing Childcare Voucher scheme.
Self-employed parents, if they fulfil eligibility requirements. Families with part time childcare costs (particularly those with school age children) will generally be better off with the existing Childcare Voucher scheme.
Higher-rate tax payers who pay up to £6252 Employers - they will no longer save money from lower NI contributions
  Families where either parent earns over £150,000 annually will no longer be eligible under the new scheme.