In this article, Neil Cameron in our Payroll team outlines forthcoming changes to childcare vouchers and how employers/ employees can prepare for the change.
What are Childcare Vouchers?
Childcare Vouchers are a Government-approved, tax-efficient way of paying for childcare. An employee can exchange part of their gross salary for Childcare Vouchers, which are tax-free and exempt from National Insurance Contributions (NIC). The Vouchers are also NIC exempt for employers so are a fantastic benefit to offer employees. They can be used against the cost of childcare for a variety of registered providers such as nurseries, nannies and out-of-school clubs. This means that if an employee gives £1,000 of their salary towards vouchers, after tax and NIC the cost to the employee will be roughly £700. In return the employee will receive £1,000 of vouchers, effectively being £300 better off.
The Government is closing the Childcare Voucher scheme to new entrants from 4 October 2018. This is because it has rolled out a new scheme called Tax Free Childcare (TFC) that changes the package of financial support offered to working parents. In the new scheme, the Government will top up £2 for every £8 an employee pays into their scheme up to a maximum of £2,000 per year. New entrants to the existing Childcare Voucher scheme need to be in receipt of their first vouchers on or before 3 October 2018. For monthly paid employees this is likely to be the September pay period. After 4 October 2018, parents must register for the Government’s online TFC scheme.
So, what happens from 4 October 2018?
Employees who are already registered into their employer’s Childcare Voucher scheme can continue to receive vouchers as normal, or they can choose to use the TFC scheme instead.
Employees who would like to start using the TFC scheme from 4 October onwards must register online and employees must manage their own account. Further information on the TFC scheme is available at www.gov.uk/help-with-childcare-costs.
If you currently offer vouchers to your employees we would recommend that you communicate the forthcoming changes to staff. If you have a query about Childcare Vouchers, please feel free to contact Neil Cameron in the Chiene + Tait Payroll Team at email@example.com.