Following a number of debates in Parliament, the Government has agreed to a six-month extension of the Childcare Voucher scheme. Therefore the scheme will not be closing in April 2018 as previously reported.
The Childcare voucher scheme is available to all working parents in the UK which is organised through their employer.
Under the voucher scheme, parents can take up to £55 each week from their salary before tax and National Insurance, or £243 a month, to spend on childcare no matter how many children they have, as long as the parent is a basic-rate taxpayer.
However, using tax-free childcare parents have 20 per cent of their childcare costs met by the Government each year, up to a limit of £2,000 a year per child, or £4,000 if a child is disabled.
This scheme is open to self-employed people, who are excluded from the childcare voucher arrangements.
Subject to eligibility, both parents (if they are together) must be working 16 hours a week and be paid at least the national living wage of £7.50 an hour, if over 25, or £120 a week to receive tax-free childcare. This will increase to £7.83 an hour or £125.28 a week, from April this year as the national living wage rises.
For families within the basic-rate tax bracket who qualify for either scheme, anyone who spends less than £9,336 in total on childcare would likely be better off with vouchers. The same goes for those who pay the higher tax rate and spend less than £6,252 in total.
However, families with a larger number of children are more likely to benefit from tax-free childcare, as the system works on a per-child basis rather than per parent.
Anyone who is claiming tax credits or universal credit or if either parent earns more than £100,000 will not be eligible for tax-free childcare.
The two schemes cannot be used in conjunction with one another, but either can be used alongside the 15 or 30 hours of free childcare offered to children aged three and four.
Employers thinking about providing childcare support for their employees should seek professional advice in order to maximise the tax relief available to both the company and their staff.
For further details or to arrange a free, no obligation meeting, please contact a member of our Tax-Free Childcare team.
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