The Association of Taxation Technicians (ATT) welcomes the Government’s announcement that parents will have an extra six months to sign up for childcare vouchers and encourages employers to use this time to explore the potential benefits of providing vouchers to their employees.
The Government announced in a House of Commons debate on 13 March 2018 that the deadline for new applicants to access the tax and national insurance relief offered through childcare vouchers1 will be extended by six months. As a result, parents now have until the beginning of October 2018 to sign up for childcare vouchers (if they have not done so already).2
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“We welcome the Government’s decision to extend the deadline for parents to sign up for childcare vouchers.
“The intended replacement for childcare vouchers, Tax Free Childcare (TFC)3 operates in a very different way to childcare vouchers. As a result, depending on their personal circumstances, some parents may find they are better off receiving vouchers than TFC.”4
Childcare vouchers may also be preferable to TFC from an employer perspective. Where childcare vouchers are provided under salary sacrifice there will be a Class I Secondary National Insurance Contribution (NIC) saving for the employer of 13.8 per cent of the salary surrendered. By contrast, TFC provides no NIC savings for employers or employees.
Yvette Nunn said:
“However, it should be noted that, unlike TFC, childcare voucher schemes have to be run by an employer, and that gives rise to some extra administration and costs.
“We recommend employers who are in a position to do so, to use the extra time given by the Government’s announcement to consider the implications of the alternatives of childcare vouchers and TFC for both themselves and their employees.”
Notes for editors
1. Childcare vouchers are a popular, tax efficient way for employers to provide a benefit to their employees. Typically, the employer signs up with a third party provider that supplies vouchers to the employee, who can then use them to pay for qualifying childcare. Provided that the value of the vouchers received does not exceed set maximum limits (which depend on how much the employee earns) then they can be received free of tax.
2. It had previously been announced that, from 6 April 2018, the income tax and NIC benefits of childcare vouchers would no longer be available to new entrants. This would have meant that:
- If parents were not already signed up for vouchers at that time, they would not have been able to benefit from the associated income tax and NIC benefits of vouchers in the future, but
- Employees already receiving childcare vouchers at that time could continue to receive them as long as their employer ran the scheme or until they changed employer.
The announcement on 13 March stated that parents who wish to receive the income tax and NIC benefits of childcare vouchers, but have not signed up for them already, will have a further six months to sign up. Based on the originally announced cut-off date of 6 April 2018, this should mean parents have until at least 5 October 2018 to sign up. However, the exact date has not yet been confirmed by HMRC.
No action is required by parents who are already receiving childcare vouchers, who can continue to receive them for as long as their employer runs the scheme or until they change employer.
See Hansard link here.
3. In April 2017 the Government launched a new Tax Free Childcare (TFC) scheme which is intended to be a replacement for childcare vouchers. Unlike childcare vouchers, TFC operates independently from employers:
- Parents set up an online account which they use to pay for their childcare.
- Contributions into this account are topped up with the equivalent of basic rate tax by the Government – i.e. for every £8 which parents put in, the Government will add £2.
- Parents can receive up to £2,000 per annum per child in top up payments from the government (£4,000 for disabled children).
4. Parents can currently claim either childcare vouchers or TFC – not both.
Whether parents are better off with childcare vouchers or TFC will depend on their personal circumstances, including:
- The level of their earnings.
- Their childcare costs.
- The number of children they have.
Parents will need to look closely at their own circumstances in order to decide which is best for them
Parents eligible for Universal Credit or tax credits need to be particularly careful when considering childcare vouchers and TFC, as in some cases making an application for one scheme can end financial support under another.
The Government’s Childcare Calculator provides more information for parents as to what help they can receive towards their childcare based on their personal situation. This covers tax credits, childcare vouchers and TFC, but not universal credit.
5. More information on the scope of TFC and childcare vouchers, together with examples of when one scheme may be preferable to the other, can be found on the ATT website.