Sign up for childcare vouchers first and then take a long hard look at Tax free childcare….
I am sure that you will have heard something by now, about the Governments “Tax Free childcare” due to go live in April. Designed to help working parents, it is being marketed by the government as a fantastic solution for everyone.
We are not sure that it will be the best solution for all parents and this fact has been picked up by Martin Lewis, of Moneysavingexpert too. So, we wanted to give you a summary of Tax Free Childcare compared with the childcare voucher benefit (that is still available for parents to sign up to until APRIL 2018) and fill you in on some of the facts the government are keeping quiet about!
- Will childcare vouchers be continuing? Yes! Childcare vouchers will remain open for parents to sign up to until April 2018. Parents can then continue to take them until they change jobs. If a parent moves to a new employer after April 2018, they will no longer be able to take vouchers and would have to use Tax Free childcare. Vouchers can be used to pay for Ofsted registered childcare until the youngest child in the family is 15 years old.
- What is Tax Free childcare? Being launched from 28 April 2017 initially to a pilot group of parents, and available country wide from April 2018, it allows parents to claim up to £2,000 per child up to the age of 12. Parents pay 80 pence into an account to get an extra 20p from the government.
- Who can claim the benefits? Childcare vouchers can be claimed by parents as soon as their first child is born. Partners can claim the benefit even if the mother is off on maternity leave. Tax free childcare can only be claimed once both parents are back at work. This alone, means that new parents will be significantly worse off come April 2018.
- How do employees access each of the benefits? Childcare vouchers are organised by the employer and are easy to sign up for and use. By offering childcare vouchers, an employer is able to to help staff with the return to work decision. Tax Free childcare however, requires parents to sign into a government portal, complete full details about themselves and then make a payment to the government using their debit card. Once the monies have been paid, the government will top them up with 20 pence for each 80 pence put in. Operated as an on-line system, the government have advised that they aren’t providing a telephone helpline and that “if payments go awry, it will be up to the parent to sort them out!”
Parents using TFC must re-sign into the portal every 3 months to continue in the benefit.
- What happens if one parent isn’t working? Tax Free childcare is only available when both parents are working or if single parents work more than 16 hours and aren’t claiming working tax credit. This is an important fact to consider, as if employees swap to the new Tax Free childcare benefit and one parent wants to change jobs or becomes unemployed, the family cannot then access any help with childcare costs.
- Can employees change back to childcare vouchers if they are unhappy with the tax free childcare scheme? Once an employee has been using TFC for 3 months, they cannot change back to childcare vouchers.
Helping employees moving forwards:
We provide another benefit that makes a huge difference to employees when contemplating their return to work decision.
It is called Workplace nursery benefit. Available since 1988, it has remained unchanged by the government and allows an employer to offer all employees using a nursery, the ability to save significant amounts on their monthly childcare costs. As long as a number of key conditions are satisfied by the business and the nursery (which we facilitate), workplace nursery benefit can allow an employee to save tax and NI on ALL of their fees, not just the amount achievable with vouchers.
As an example, if an employees childcare costs are £1,500 a month, a basic rate tax payer can save £4,536 a year using this benefit! This benefit can be offered at no cost to the business (or with a saving in employers NI payments).
We are recommending to all our clients, that they re-promote childcare vouchers to employees now and advise them that they can sign up to the benefit, even if it’s just for £1 a month. This means they are in the scheme and have options moving forwards.