Tax Free Childcare vs Childcare Vouchers: which is best?
The Tax Free Childcare scheme replaced the old employer supported voucher system, but is it any better? Here's a look at what's changed and how it could hit your pocket.
What is Tax Free Childcare?
It's a government scheme designed to help working parents with the cost of childcare.
For every £8 you pay in, the government will add another £2, with a maximum saving of £2,000 per child each year to spend on childcare.
Here is more information on how the Tax Free Childcare scheme works.
Pros and cons of Tax Free Childcare
| Pros | Cons |
|---|---|
| Benefit available per child | Can't get if claiming some benefits |
| Available to self-employed parents | Can't get if income is over £100k |
| Saves more if care costs are high | Both parents must work to qualify |
What are Childcare Vouchers?
They are offered through your employer and you could use them to pay for your child's care. The cost is taken from your salary before income tax and national insurance are deducted.
For any employees who applied to join a childcare scheme you run before 6 April, 2011, the limit is £55 a week, or £243 a month.
You could buy up to £243 of vouchers each month, which works out as a maximum annual saving of £933 if you're a basic rate tax payer.
You need to set up a voucher account, and then your employer would order your vouchers through payroll every month. You'd usually receive them at the same time as your pay.
Find out how childcare vouchers work on GOV.UK
Pros and cons of Childcare Vouchers
| Pros | Cons |
|---|---|
| No eligibility checks | Employer may not offer it |
| You could save more | Can't get if self employed |
| Both parents do not have to work | Saves less if care costs are high |
Which is best for you?
Tax Free Childcare is best for...
Single parents with childcare costs of £5,000 or more: For example, if your costs are £5,000, you could save £1,000 under the Tax Free Childcare system compared to a maximum of £933 under the voucher scheme.
Families with two working parents and childcare costs over £9,500: For example, if your costs are £10,000, you could save £2,000 under the Tax Free Childcare system compared to a maximum of £1,866 under the voucher scheme.
Parents that are not eligible for the voucher scheme: For example, if you are self-employed, or your employer does not offer the scheme.
As a general rule, you'll be better off using the Tax Free Childcare system if your childcare costs are:
More than £4,650 a year as a single parent family
More than £9,300 a year as a two parent family
*Figures from Edenred Childcare Vouchers
However, childcare vouchers were best for...
Families with childcare costs less than the amounts above, or that do not meet the Tax Free Childcare eligibility criteria, for example:
Two parent families where one does not work
Families where either parent earns over £100,000
Families where either parent works less than 16 hours a week
What should you do?
Use the GOV.UK calculator to work out how much you could claim in childcare vouchers.
Help stretch your budget a little further by making the most of your savings.