Is Childcare Voucher Scheme to Remain Open?

For many years, working parents have been using the childcare voucher scheme to help pay for the cost of childcare. With the scheme set to close to new applicants from 4th October 2018, employers of more than 45,000 workers are calling for it to be kept open.

There is a very real fear that closing the scheme to new applicants could end up leaving countless parents worse off financially. Employers are worried that by closing off this childcare option, many working parents will be less likely to engage with employment.

Employer Support

Seventy-five firms have signed a petition to block the closure of the scheme to new parents, including among others Barnardo’s, the Chartered Institute of Building, and Kettle Foods.

Initially due to stop taking new applicants in April 2018, the scheme was pushed back to October, with the new closure date set for fourth of the month.

What is the Childcare Voucher Scheme?

Up until now, working parents have been able to purchase childcare vouchers from their salary before paying any tax. The scheme allows for £55 per week of pre-tax salary to be exchanged for childcare vouchers. With the money spent on childcare vouchers exempt from tax and NI contributions, parents were able to make savings of around £933 per year. Moreover, with both parents capable of applying for vouchers if the scheme is provided by their employer, it would then be possible to save up to £1866 annually.

New Scheme

Nevertheless, the government introduced a new ‘Tax-Free Childcare’ scheme to replace the childcare voucher scheme and are pushing ahead with its implementation. This scheme is designed to provide parents with a twenty per cent contribution for every pound they spend on childcare. Parents can claim the government contribution on childcare costs up to £10,000 per year.

Although those already on the childcare voucher scheme can stay on it if they wish, new parents will have to avail of the tax-free childcare scheme after October 4th. Furthermore, if parents do switch to the new scheme, they will be unable to switch back.

To be fair, there are both pros and cons to the new scheme. For example, the self-employed will now be able to benefit from childcare support, but in order to do this both parents must be working. Childcare support cannot be claimed if one person is working while the other is not.

With the tax-free childcare scheme, support can only be claimed for children up to the age of 12, whereas with the voucher scheme the age is fifteen. For children with disabilities, the age remains at 16.

Parents must be earning at least £125.28 per week and less than £100,000 annually. If one parent earns more than £100,000 and the other less than this amount, tax-free childcare cannot be claimed.

Worse Off Financially

With the average cost of sending a child under the age of two to nursery standing at £122.46 per week, there are fears that many parents will be worse off under the new scheme. Campaigners are now urging the government to keep the childcare voucher scheme open in order to give parents more options.

While some parents will benefit financially from the new scheme, there are some cases where parents will see their savings drop. The CVPA (Childcare Voucher Providers Association) launched a campaign to keep the voucher scheme open in early 2018, and it now has 75 businesses and charities signed up (as mentioned at the beginning of this article).

CVPA chair Jacquie Mills said, “Employers across the country want the Childcare Voucher scheme to remain open because the families they employ would struggle to manage work and home life without it. It is vital for businesses’ recruitment and retention – working parents consistently favour employers who understand and support their childcare needs.”

Those already on the childcare voucher scheme will be affected if they change jobs after October 4th as they will be unable to apply for the scheme with a new employer.

A spokesperson for Kettle Foods said, "The scheme helps many of our working parents to maintain a healthy work-life balance and is one of the most popular employee benefits we offer."

Despite the findings, it appears the government has no plans to halt the closure of the scheme. In response to a query from Mirror Money, a HMRC spokesperson said, “Tax-free childcare is available to working parents regardless of where they work and includes the self-employed, making it fairer and more accessible than vouchers – which are only offered by some employers. It will provide support to nearly one million more families compared to the number currently using vouchers. It’s also paid per child rather than per parent, so lone parents can access the same support as couples, and parents get more support as their childcare costs rise. Parents who are already getting vouchers can continue to do so, as long as they stay with the same employer and they continue to run the scheme.”