The issue of childcare and how to pay for it is something that many parents worry about. Some worry to such an extent that it can begin to stress them out during their maternity or paternity leave. If you are a new parent and are worrying about returning to work and the issue of childcare, then you might want to find out all you can about the financial help that is currently available to you.
In the UK, there are a number of different schemes that you can avail of to help with the cost of childcare. Childcare vouchers are one such scheme, but you need to hurry if you are not already in receipt of this form of help because the scheme is set to close to new applicants from April 2018.
If you have recently joined a childcare voucher scheme and want to know more about it, then read on.
What Are Childcare Vouchers?
Childcare vouchers are a terrific way for parents to save money on childcare costs. They are available through employers only, but not all companies have opted in to the scheme. Those that have, give their employees the chance to save more than £1,000 in childcare costs every year for children up to the age of fifteen.
Childcare vouchers work by allowing parents to pay for childcare out of their pre-tax income. This means that childcare payments can be made on income earned before tax and national insurance payments have been made.
Although it might not sound like a lot, it can actually work out quite beneficial for parents who are paying for childcare regularly.
How Do They Work?
If you are part of a childcare voucher scheme, you will likely have to agree to a salary sacrifice. This means that you will be asked to give up £1,000 of your salary annually from which childcare can be paid. However, that £1,000 would only be worth around £700 in your pocket if you were to pay tax and national insurance on it. So, although you will be giving up around £700 in take-home pay, you can get vouchers worth £1,000 to pay for childcare. This means that you are better off by about £300.
Buying Childcare Vouchers
If you pay the basic-rate tax, you are entitled to purchase up to £55 per week worth of childcare vouchers. You should remember that this allowance is per parent. If you are a two-parent family and both parents are working in a company that is part of the childcare voucher scheme, you can purchase up to £110 of vouchers per week, which equates to around £486 every month.
Higher-rate tax payers who joined the scheme before 5th April 2011 have the same allowance, provided they did not take a break of more than 12 months from the scheme. However, to ensure that the same tax saving applied to everyone, higher rate taxpayers who joined after this date, had their allowance cut.
At the time of this writing, basic rate taxpayers can purchase up to £55 per week, which gives them a maximum saving of £930 per year. Those who are paying the 40% tax rate can purchase vouchers of up to £28 per week, giving them a maximum saving of £630 per year. Those paying the top rate of tax (45%), can buy £25 worth of vouchers, giving them a maximum saving of £590 per year.
It is important to remember that childcare voucher allowance does not change depending on the number of children you have. The allowance is the same for one child or for five children. If your childcare costs exceed the value of your vouchers, you will have to pay the difference.
You should also know that you can save up leftover vouchers to use when your childcare costs might be higher, such as during school holidays.
What Childcare Options Do You Have?
You can use childcare vouchers for any child under the age of fifteen. Vouchers can also be used until 1st September after your child’s fifteenth birthday. There are certain rules regarding who provides childcare when using childcare vouchers.
You will have the option of using any of the following:
- Au pair.
What you need to remember though is that whoever provides childcare for your child must be registered with the appropriate governing body (Ofsted in England, Care and Social Services Inspectorate in Wales, Care Inspectorate in Scotland, and Health, Social Services and Public Safety in Northern Ireland).
A relative can be paid with childcare vouchers, provided he or she takes care of your child in their home and has been registered as a childminder.
What you might not be aware of is that childcare vouchers can also be used to pay tutors. The tutor must be happy to accept vouchers as payment and must also be registered.
Although the childcare voucher scheme is closing to new applicants as of April 2018, those who have already joined the scheme and do not take a career break of longer than one year can continue to use vouchers. A new Tax-Free Childcare scheme will take the place of childcare vouchers from 6th April 2018.
What is Tax-Free Childcare?
If you apply for tax-free childcare and are successful, you can claim up to £500 every three months for each child towards the cost of childcare. The way it works is that the Government will pay £2 towards the cost of childcare for every £8 that you pay.
To be eligible for tax-free childcare, you and your partner must be in work, or on parental, annual, or sick leave. You must also be earning at least the minimum living or national wage for sixteen hours per week. You may also be eligible if you are in receipt of certain benefits.
Tax-free childcare is available for children under the age of eleven or until September 1st after the child’s eleventh birthday. You cannot get tax-free childcare while in receipt of childcare vouchers. If you apply for tax-free childcare and are successful, you will have to tell your employer that you are no longer a part of the childcare voucher scheme. You will have ninety days to do this.
You can use any remaining vouchers that you have while also getting tax-free childcare. You do not have a deadline for using your vouchers and they can be used to make a joint payment with your tax-free childcare.
You should know that if you leave the childcare voucher scheme, you cannot re-join. The Government website has a calculator that will enable you to see if you would be better off with the childcare voucher scheme or the tax-free childcare scheme.