Child’s play? Childcare vouchers versus tax free childcare

tax free childcare

Childcare vouchers will close to new applicants on 4 October 2018. With the changes coming up soon, today I have tax specialist Craig Harman, from Perrys Chartered Accountants, to help us understand the benefits of vouchers versus tax free childcare and offers his advice for families facing a financial conundrum.

Can you give us an easy to understand overview of tax free childcare and how it works?

Tax free childcare will replace childcare vouchers, which close to new applicants on 4 October 2018. The scheme is designed to help eligible families save on childcare costs. Parents can receive up to £2,000 per child to cover these costs.

Who is eligible for tax free childcare?

Anyone can apply, including those who are self-employed, as long as the maximum income per parent is less than £100,000. If you are a couple, then both parents must be working at least 16 hours per week and earning at least the National Minimum Wage, or National Living Wage if you are aged 25 or over. The maximum age of a child you can claim for is 11 years old or 16 years old if they are disabled.

Are there any downsides?

Unlike childcare vouchers there is a maximum income limit of less than £100,000 per parent. However, because anyone can apply it is not limited to those who are employed but can also be claimed by those who are self-employed

Which scheme will work better – vouchers or tax free childcare?

It depends on eligibility, how many children you have and what your childcare costs are. In theory, tax free childcare will be better if you have more children and higher childcare costs whereas childcare vouchers are better for fewer children and lower childcare costs. However, this is subject to being eligible for either scheme.

Are there certain types of people for whom vouchers work better for, and for whom tax free childcare will work better for?

Again, this depends on your childcare costs as mentioned above. Childcare vouchers are not available to self-employed individuals.

What are the key things that parents need to think about when deciding which is best for them?

First work out if you are eligible. If you can claim for either, you should weigh up the pros and cons of each scheme and your individual circumstances before making any final decisions. If you are uncertain, it is always worth checking with a professional accountant or financial expert for advice. For more information you can also visit the government’s information page www.gov.uk/help-with-childcare-costs.

Well I hope that helps to clarify things in the great childcare vouchers vs tax free childcare debate! What are your thoughts on the changes? Do leave a comment and share.

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