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The government’s new childcare system: are you a winner or a loser?

Cherry Reynard
Written By:
Cherry Reynard
Posted:
Updated:
16/08/2017

Changes to the childcare voucher system were announced in April 2017, but are you likely to be a winner or a loser from the new system?

Parents who are already members of a Childcare Voucher system should be able to continue to use it, as long as their employer is still providing access. New members can join the current scheme up until April 2018.

The new system, called ‘Tax-Free Childcare’, is available online and the government will contribute 20p for every 80p that parents spend on registered childcare.

The maximum government contribution per year is £2,000 per child under 12 (or £4,000 for disabled children under 17 ). Parents must be in work to qualify, with each parent earning just over £100 per week, but they must earn less than £100,000 each per year.

Parents are able to apply by opening an online account which is available through the government Tax-Free Childcare website. They pay into this account which is then topped up by the government. Parents then need to re-confirm their circumstances every three months. Qualifying childcare may include childminders, holiday clubs and nurseries.

Financial education group WEALTH at work, has created a list of likely ‘winners and losers’ from the new system.

Winners

  • Basic rate tax payer families spending more than £9,331.20 a year on childcare
  • Higher rate tax payer families spending more than £6,249.60 a year on childcare
  • Families with lots of children (as funding is per child)
  • Self-employed (as previously it was only available through employers).

Losers

  • A basic rate tax payer who has access to Childcare Vouchers and spends less than £4,665.60 per year on childcare. If both parents pay basic rate tax and have access to Childcare Vouchers, they would need to collectively spend less than £9,331.20 on childcare to be worse off
  • A higher rate tax payer who has access to Childcare Vouchers and spends less than £3,124.80 per year on childcare
  • If both parents pay higher rate tax and have access to Childcare Vouchers, they would need to collectively spend less than £6,249.60 on childcare to be worse off
  • Anyone earning more than £100,000
  • Parents who live together, but only one parent is working
  • Families with children aged between 12 and 15.

Jonathan Watts-Lay, director at WEALTH at work, said: “Whether parents are better off with the old or new scheme depends on many factors including how much they earn, how much they spend on qualifying childcare, whether both parents work, how old their children are, and how many children they have. Parents who think they will be better off under the old scheme have until April 2018 to register with their employer (note: not all employers offer the scheme), and anyone who misses this deadline will only be able to join the new scheme.

“Parents who are unsure if they are a ‘winner or loser’ under the new tax free childcare scheme should speak to their employer. Many employers offer a range of benefits to help their employees save money, as well as financial education to help their employees understand their saving options. It is always worth asking what support is available.”