The new ‘tax-free’ childcare system – will it help you?

In 2013 the government announced their plan to restrict employer based voucher systems of subsidised childcare. The new tax-free system has already come into effect, and you only have until April 2018 to decide which system to enrol in. So, what are the main points you need to know, and how can we help you to make the right choice for the future of your children?

The Previous System

The government’s previous system for assisting parents with the cost of childcare, involved employers setting up the use of childcare vouchers through a salary-sacrifice system. This was available only to employed parents, and enables each parent paying basic rate tax to receive up to £933 per annum for childcare for children up to age 16 (17 if disabled).

The New System

The new system provides parents with an account into which can be paid money for childcare. The government will top-up the account, so for every 80p you put in, you will receive an extra 20p from the government, up to a total of £2,000 (£4,000 if disabled). This means that for every £1 in the account, 20% of it is given to you by the government. The scheme is the equivalent of ‘tax free’ as you effectively aren’t paying the 20% VAT, thus it is more like a government subsidy than a tax-free programme. This scheme is open to both the employed and the self-employed with each parent’s earnings below £100,000, but will only be provided for children up to the age of 11.

What it Could Mean for You

This is a time-limited option as new entrants to the previous system will not be permitted after April 2018. Adopting the new tax-free system could save you a large amount on childcare costs. However, depending on your situation, it could be significantly more beneficial to remain with the voucher system.

How We Can Help

Our expertise will help you to comprehensively review your childcare situation. We are able to give you the best advice on which option will save you more money in the long term interests of care for your child. Please contact us if you would like further assistance.