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Help with Childcare Costs

09 August 2017

As any parent will tell you, childcare costs for those parents who are working can be extortionate and any help that is available to reduce these costs is more than welcome.

There are a range of tax free schemes available to help working parents with qualifying childcare costs (such as payments to registered child carers including childminders, nurseries, nannies, after school clubs and schools) including a new ‘Tax Free Childcare’ scheme. This article compares the new scheme to the existing childcare voucher scheme.

Tax Free Childcare

From April 2017, the government have launched a new tax free childcare scheme, which will eventually replace childcare vouchers.

If you’re a working parent with children under 12 you can open an online account to pay for registered childcare. The government will give you a savings top up of £2 for every £8 you put into the account, up to a maximum of £2,000 per child.

Parents with children who will be under 4 on 31 August 2017 can apply now. The scheme will be rolled out to parents with children between 4 and 12 years later in 2017.

In order to qualify, you and your partner must both be working at least 16 hours a week and together earn at least £120 per week and neither of you can earn more than £100,000 per annum.  This can be from employment income or self-employment profits. 

You can’t claim tax free childcare if you already receive childcare vouchers or tax credits.

Childcare Vouchers

Employers sometimes offer childcare voucher schemes, whereby you can claim up to £243 per month in childcare vouchers (depending on how much you earn and when you joined the scheme) for children up to 15 years old. 

Childcare vouchers are being phased out and replaced by the new tax free childcare scheme but existing childcare voucher schemes can accept new joiners until April 2018.  Parents already using childcare vouchers can continue to use them after April 2018, as long as the employer continues to offer them.

If your employer offers childcare vouchers (or arranges your childcare), these can be worth up to £933 per annum in tax and NIC savings for basic rate taxpayers by deducting the amount of childcare vouchers from your salary before tax and NIC is calculated. 

For higher and additional rate taxpayers, the savings can reduce to a maximum of £625 and £620 respectively if you joined the scheme after 6 April 2011.  However, the savings can be up to £1,224 and £1,370 respectively if you joined the scheme before 6 April 2011.

Quick Comparison 

Tax Free Childcare


Childcare Vouchers

Anyone can apply

Only available if employer offers them

Both parents must work at least 16 hours a week and earn on average more than £120 per week but less than £100k per annum.

Only one parent needs to be working.  They must earn more than the national minimum wage after childcare vouchers have been deducted but there’s no maximum earnings limit

Available to the employed and self employed

Available only to the employed

Child’s max age is 12

Child’s max age is 15


So which is better?

If you’re self employed, you can’t claim childcare vouchers so tax free childcare is obviously the choice for you.  However, if your employed, whether or not childcare vouchers are better than tax free childcare will very much depend on individual circumstances. 

If you’re employed, as a general rule, if you have several children and high childcare costs, tax free childcare is likely to be the best option.  However, if you have fewer children and lower childcare costs you may be better off with childcare vouchers. 

For instance, a single parent paying tax at the basic rate with childcare costs of £6,000 could save £1,200 with tax free childcare compared with a maximum saving of £933 for childcare vouchers.  A two parent family could however save up to £1,866 with childcare vouchers.

A two parent family could save £6,000 under the tax free childcare scheme (if childcare costs were £30,000 for 3 children) but could save only up to a maximum of £1,866 under the childcare vouchers scheme if they are both basic rate taxpayers.

As there are so many variables, it is therefore important to take advice to consider your specific circumstances.  Speak to your usual Springfords tax adviser or contact

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