The UK reportedly has some of the most expensive childcare in the world with parents spending an average £11,000 per year on one full time nursery place for a 2 year-old. With figures like that it’s no wonder the tax free childcare schemes, introduced in 2005, have been so popular as parents look to make savings on their childcare with a high uptake as an employer benefit.
As an employer you will be aware that childcare voucher schemes have changed and that existing schemes which may have formed part of your employer benefits package closed to new entrants on 4th April 2018.
Employer supported schemes are due to replaced by a government scheme called Tax Free Childcare (TFC). It is thought this scheme will be introduced in late 2018, although no fixed date has yet been confirmed.
Employees who are currently receiving childcare vouchers through your existing scheme will be able to continue with this if they wish until the youngest child reaches the age of 15 (or 16 if they are disabled) unless your company withdraws the benefit scheme or the employee leaves the company.
So what do you and your employees need to know about the new Government scheme?
The TFC is how the government intend to help working parents with the cost of childcare although the launch of this has already been delayed from the original proposal of April 2018. Individuals will be able to register and open an account online at Gov.UK once the scheme goes live to help pay for fees of registered childcare providers.
The government proposal is to provide a subsidy of 20p for each 80p paid into a childcare account with NS&I. The maximum amount of £10,000 can be put in the account and the subsidy works out at £2,000. This is equivalent to the 20% most people pay in taxes, which is why the scheme is called 'tax-free'.
According to the information released so far, the scheme will provide support to those who work part time earning more than £50 per week, to those on maternity/paternity or adoption leave and also for individuals with their own business who may not meet minimum earning criteria.
What is the eligibility criteria for a TFC?
Both parents must work in order to be eligible;
Parents are required to earn at least £50 a week and no more than £150,000 per year;
The subsidy is per child, not parent;
The scheme is available for children up to age 12 (for children with disabilities it’s up to age 17);
Both parents must be on the same plan, i.e. you cannot have one on ESC and one on TFC;
Those who are self-employed are eligible;
Anyone can pay into the plan, not just parents, but grandparents as well;
You can take money out of the account, however the government subsidy will be removed;
Quarterly submission of eligibility will be required;
There will be no employer involvement;
Employer's workplace nurseries aren't affected.
What are the main differences between the two plans?
Employer Assisted Childcare Scheme: Childcare Vouchers
Savings: Each working parent can save £933, the savings are doubled to £1,866 for parents who both work. Employers make 13.8% Employer National Insurance savings.
Eligibility of Child: Available for children up to the age of 15 (16 if disabled).
Employed Parents in the Family: Only requires 1 parent to work to qualify.
Income Criteria:Parents who earn above the National Minimum Wage are eligible.
Commencement Date: Currently in place and offered to working parents where their Employer has signed up to the scheme.
Tax-Free Childcare Scheme
Savings: Parents can save up to £2,000 per child, per year. There is no Employer saving.
Eligibility of Child: Available for children up to the age of 12 (17 if disabled).
Employed Parents in the Family:Both parents must work to be eligible (unless single parent).
Income Criteria: Each parent must earn at least £50 per week, with a maximum of up to £149,999.99
Commencement Date: The scheme launch date is still TBC
For your employees, it is worth noting that they will also be able to use Tax-Free Childcare with other “free” schemes i.e. parents of three and four-year-olds are entitled to 15 hours a week of free childcare, for at least 38 weeks a year.
Whether the new government scheme will be successful is yet to be seen but it’s certainly worth communicating the information regarding the changes to childcare savings schemes to your employees so that they can assess the two options to see which could offer the best savings and value for them.
Please note our blog posts contain general information and are intended as guidance only and should not be taken as an authoritative or current interpretation of the law. Please ensure that you obtain advice tailored to your individual situation before taking action. These posts apply to the UK only.