Recent Government introduction of Tax Free Childcare has led to parents assessing their current arrangements. There is still a lot of confusion regarding which option may be best suited to individual circumstances.
‘tax free childcare’
From 2017, the Government introduced ‘Tax Free Childcare’ (TFC). This has resulted in parents and guardians reviewing their existing arrangements. Primarily these arrangements would involve childcare vouchers being provided by employers which helped parents to manage costs as there was an income tax and NIC saving.
We’ve found there is still a lot of confusion amongst people surrounding the 2 different alternatives and which one may be better.
What is the employer supported childcare scheme (childcare vouchers)?
The current childcare scheme was introduced in 2005 and amended in 2011. The scheme saves parents/guardians money on childcare costs by way of income tax and NIC relief on qualifying costs. The limits vary depending on the tax bracket of the individual. The restrictions are as follows;
Basic rate taxpayers – £243 a month tax and NIC free
Higher rate taxpayers – £124 a month tax and NIC free
Additional rate taxpayers – £110 a month tax and NIC free
It is believed this scheme has helped more than 750,000 employees. The scheme is administered on what’s known as a ‘salary sacrifice’ basis, where payments are made from gross employee pay rather than net.
Under this scheme the relief is based on a per employee basis rather than per child basis with both parents eligible to claim. Thus a parent with one child can claim the same as a parent with five.
This scheme will continue to be available to join up to 4th October 2018. After this date all new parents/guardians will only be able to join the Tax Free Childcare scheme.
Tax free childcare
This scheme was introduced in early 2017. The scheme operates directly between the Government, parents and childcare providers. This can be applied for online via the link below and eligibility criteria must be met;
TFC operates on a per-child basis unlike with childcare vouchers. The Government tops up 20p for every 80p paid into the childcare account. A maximum per annum amount of £2,000 is paid by the Government per child. Parents and guardians will need to check whether their childcare provider is also signed up to the scheme in order to use the account. An important point to note is if any employers contribute directly to the account then this payment will be subject to tax and class 1 NIC via payroll.
Which scheme is better?
As with most cases, this depends. We’ve put together some illustrations of different scenarios which you can receive for FREE. Simply email us at email@example.com to request Childcare Illustrations.