Cutting through compliance: the end of childcare vouchers?
Tax-free childcare (TFC) is a new way to support working parents with the cost of childcare, with an increase in free childcare to 30 hours per week (up from 15) for 3 and 4 year olds this autumn. It launched on 21st April 2017.
The scheme should have launched some time ago but because there was a legal challenge, it’s happening at the same time as the other changes to salary sacrifice (which is the way that childcare support is usually delivered).
What you need to know
Once we reach 6th April 2018 no employees will be permitted to join your childcare voucher scheme, but those who are members by 5th April 2018 can remain in the scheme if they stay employed by you. If they leave they won’t be able to join a voucher scheme at their new employer, only TFC will be open to them.
Once an employee joins TFC they have 3 months to tell you in writing that they have done so, as they must leave your voucher scheme. During the trial year (i.e. to 5th April 2018) they can leave TFC and return to vouchers.
How to join TFC
Employees set up a Joint Online Childcare Account (JOCA). To be eligible both parents must be working or self-employed (the same for single parents), earning 16 hours a week at national minimum wage and not more than £100K each, and using registered childcare. They’ll deposit money into their account each quarter based on an estimate of their childcare costs per child, and the government will top it up with 20% tax relief.
The maximum they can deposit for each child, each year, is £8,000 (double if the child is disabled), and the government will contribute £2,000.
If your employees leave your voucher scheme you must increase their salary as the sacrifice ends. This will cost you employer’s NI of 13.8% or 14.3% if you’re paying the apprenticeship levy, plus extra pension contributions too.
Useful resources and top tips
Your employees can help with deciding if they want to join TFC using the new childcare calculator online tool https://www.gov.uk/childcare-calculator and see what options they have at https://www.childcarechoices.gov.uk/.
Consider setting up a voucher scheme to maximise your employer NI savings between now and April 2018, or promote an existing scheme one more time. Remember if you’re an apprenticeship levy paying employer, any salary sacrifice will save you 14.3% employer’s NI rather than 13.8%
When your voucher population has fallen to low numbers consider moving to self-administered vouchers rather than using a voucher provider. Just tell employees that the finance team will settle the nursery or childminder’s bills if they invoice direct.
Your employees can apply for a JOCA here https://childcare-support.tax.service.gov.uk.