The closure of the workplace childcare voucher scheme: what you need to know

On Thursday 4 October 2018 the government will close the childcare voucher scheme to new entrants, replacing it with the new tax-free childcare scheme.

We thought that this is important for those who have benefited from the voucher scheme, and are unsure what’s going on, so we asked Charlotte Cowgill, Legal Adviser at DAS Law, to share what you need to know…

Why is the government making this move?

The new scheme is intended to be a fairer and better targeted system than childcare vouchers, and will mean that all families can get support regardless of their employer or whether they are self-employed. Support is based on the number of children in a family, rather than number of parents as seen in the current childcare voucher scheme. Parents who wish to continue to enjoy the benefits of childcare vouchers must be existing members or have registered and received vouchers prior to the 4 October deadline.

What is employer supported childcare?

Previously known as the childcare voucher scheme, it enables working parents to sacrifice up to £243 per month of their salary in exchange for childcare vouchers. The vouchers can be used as payment for many forms of registered childcare, including breakfast and afterschool clubs, holiday schemes, childminders and day nurseries. The sacrificed amount is exempt from tax and National Insurance contributions and can result in savings of up to £933 per year, per parent (£1,866 per household). Employers are also exempt from NICs on the amount sacrificed by each employee, reducing their payroll costs.

Many working parents, however, are ineligible for childcare vouchers because their employers do not support the scheme. In contrast, the new tax-free childcare scheme is open to all working parents, including those that are self-employed, provided they meet the other eligibility requirements.

What is new tax-free childcare scheme?

Arising from the Childcare Payments Act 2014, tax-free childcare first became available in April 2017 and is a ‘matching’ scheme allowing eligible working parents to claim a maximum amount of £2,000 per child towards the cost of registered childcare. However, to receive it, families must also contribute to the cost.  Eligible families are required to deposit funds into a dedicated online account. For every 80p deposited the government will match it with a 20p contribution, and when the £2,000 limit is reached the government will stop matching the transfer made by the family.

Only parents with a child under the age of 12, or under the age of 16 if disabled, are eligible for scheme. The maximum income for the tax-free childcare scheme is £100,000 per parent, whereas childcare vouchers do not have an income limit (although they are reduced according to tax band).

What happens to existing scheme members?

To be recognised as an existing scheme member, parents must have had vouchers credited into their account before the deadline. This may mean – depending on the employer’s payroll cycle – that September is the last payroll in which new members can receive the vouchers, so it is imperative that employees check which deadline will apply to them. Existing scheme members can continue to enjoy the savings via the vouchers for as long as they remain with their current employer and their employer continues to offer the scheme.

If a parent’s employment circumstances change by way of TUPE transfer, they are still entitled to join the scheme under their new employer. However, if there is a complete change in employment through the parents own choice, they will no longer be entitled to the vouchers as an ‘existing scheme member’ and under the new rules they will not be allowed to join their new employer’s scheme. If the employer decides to discontinue the scheme, each working parent who was previously entitled to join would need to enrol in the tax-free childcare scheme.

What to do next?

If you are already signed up to the childcare voucher scheme you don’t need to do anything and can continue claiming them until you change jobs. If the tax-free childcare scheme works best for you, you will need to apply for the scheme via the government Childcare Choices website. You will need to give written notice to your employer that you want to permanently leave the voucher scheme to sign up to the tax-free scheme.

If you are not signed up to anything and the childcare voucher scheme works best for you, you will need to act quickly as the deadline is looming.

Check with your employer if it runs a childcare voucher scheme (speak to your HR or personnel department to check this). Note that if you are self-employed or a sole trader you will not be eligible for the childcare vouchers and you must have received your first voucher by 11.59pm on the 4 October to qualify as an existing member. Many employers will require a month’s notice to start the deductions from your payslip, so contact your payroll department ASAP to get the ball rolling.

If your employer doesn’t offer a scheme then simply sign up to the new tax-free childcare scheme.

Disclaimer: This information is for general guidance regarding rights and responsibilities and is not formal legal advice as no lawyer-client relationship has been created.