In the Budget today, Chancellor George Osbourne has confirmed it will raise the costs cap on its tax-free childcare scheme to £2,000 as announced on 18 March.
The childcare voucher scheme will continue to stay open, as long as an employee does not change employers, but it will be closed to new entrants from autumn 2015. Workplace nurseries will be unaffected.
The tax-free childcare scheme, which will take effect from autumn 2015, will be rolled out to all eligible families with children under 12 within the first year of its operation.
This is also significantly faster than previously proposed, where children under 12 would have gradually qualified for the scheme over a seven-year period.
The government said that tax-free childcare will be open to more than twice as many families as currently use employer-supported childcare vouchers and, unlike these vouchers, will not depend on employers offering it.
The government said it will benefit childcare providers, which will be able to receive each child’s payment from a single account under tax-free childcare, rather than keep track of multiple payments relating to a single child from different bank and voucher accounts.
The government confirmed announcements earlier this week, that its new tax relief for childcare to be phased in from Autumn 2015 will be increased to £2,000 per child from the £1,200 originally proposed.
Existing relief from tax and national insurance contributions (NIC) for workplace nurseries will continue unaffected. Those parents already taking part in their employer’s childcare voucher scheme will be able to continue to do so for so long as that scheme is provided.
Mark Groom, tax partner at Deloitte, said: “The new proposals are not only more generous, they are also much fairer for providing tax relief for childcare to a much bigger parent population. Currently, only employees whose employers provide either childcare vouchers or workplace nurseries can benefit. From Autumn 2015, the new scheme will be administered by parents opening an online account through the government website. This will open the relief up to the self-employed as well as those employees whose employers do not currently provide assistance with childcare”
Under the new scheme, the maximum relief is provided per child rather than per parent, and then, only provided if both parents are working and neither earn more than £150,000 per annum. However, the government has proposed to extend the new scheme to cover all children up to 12 years old. Initially it was to be available for children up 5 years old.
Groom added: “Parents currently taking part in their employer’s childcare voucher scheme will have to work out which scheme provides them with the best deal. Currently, where both parents are basic rate taxpayers, they can both benefit from tax relief on up to £55 per week in childcare vouchers, a total of £5,720 between them per annum. Their combined tax relief at 20% and NIC relief at 12%, would amount to £1,830.40. These parents would have to spend at least £7,321.60 under the new scheme, to do better than under their current childcare voucher scheme. Those basic rate tax payers joining the new scheme but spending less than £5,720 may be better off staying in their existing childcare voucher scheme, while those spending between £5,720 and £7,321.60 would be worse off if they switch from childcare voucher scheme to the new scheme in 2015.”
Groom also explained: “Parents who pay tax at 40% or more and national insurance contributions at 2% can only benefit from tax relief from existing childcare vouchers at an effective rate of 22%. As the new scheme provides relief at 25%, they will want to consider switching to the new scheme when it goes live in Autumn 2015 however much they spend.”
Currently employers benefit from a reduction in NI bill where they provide a childcare voucher facility for their employees. Is it correct that under the new scheme employers will no longer be able to benefit from NI savings as the employee will set up their scheme directly with the Government?
The benefits of the new scheme are being widely reported, however a vast number of parents who are in the current childcare voucher scheme will make bigger savings by remaining in the employer-supported scheme. Parents currently save at least 32% of eligible costs but the new scheme only offers savings of 20%. We recommend parents sign up for childcare vouchers before 2015 to preserve their ongoing savings.
It is not only parents who may be worse off in the new scheme, employers are due to lose the NI savings they currently make in the salary sacrifice scheme. These savings, in both the public and private sector, may have a negative impact on the employee benefits package they offer.
We have lots of information on our website for both parents and employers http://www.kiddivouchers.com/taxfreechildcarenews.php
It is great news that the government is giving childcare the attention it has needed for so long and increasing the tax free support available to the hard working families who need it. However, the delay in introducing these measures raises some very serious questions as to the viability of the proposal.
The changes won’t be introduced until Autumn of 2015, 18 months from now and after the next election. The long wait shows that the government is either unwilling or unable to improve the situation in the short term. This may be a result of the decision to outsource the entire programme to a company with no track record of delivering childcare support, rather than keeping it in the hands of the current voucher providers who have the experience and the infrastructure already in place.
In essence the government has taken the decision to nationalise the current childcare voucher system, a decision which means taking on the huge cost and complexity of building a new programme from scratch. This, along with the fact that the deadline falls in the post-election period, are certainly signs that suggest the government is expecting further delays to the already far away implementation date.
The good news for parents is that the current childcare voucher scheme is still available, and will continue to be available up to and beyond the launch of the new scheme, if and when it arrives. Using the current childcare voucher scheme, a family of four can save up to £1866 per year. Our advice would be to join this scheme whilst it is available and start saving money on childcare now.
I am a single mum and basic rate tax payer with two kids who will be aged 8 and 12 in 2015 and will be worse off. I pay £30 a day childcare at after school clubs during term time but £100 a day during non term time. I am currently claiming £933 per year as the full amount on the current scheme. I am stuggling to work out how I will be better off – in fact I am pretty sure I will be considerably worse off as my second child will be 12 years old.
Interesting two comments are from people who run childcare voucher companies who don’t think this will work… wonder why…
New system sounds very simple and will work well for me who works for an employer that does not take part in the childcare support vouchers.
Pay money in, get more out.. simple. people who are worse off can stay in the voucher scheme so nobody looses… except the Childcare voucher companies and sure many who have not diversified into other areas will struggle to stay afloat
There has been a need to increase the support for childcare costs in the UK for sometime and Childcare voucher providers have been lobbying for maximum voucher values to be increase for several years.
However to change a complete scheme when there is a perfectly good scheme in place with robust and tested systems is worrying.
Childcare vouchers for years have offered employees a simple solution to generate savings, and also a way for employers to support their employees whilst generating valued NI savings. A saving that enables employers to offer other important employee benefits.
Yes, many parents will be better off on the new scheme, however many also will be worse off and better sticking to the current employer supported childcare vouchers.
Having read the documents released by the Government, the new Tax Free Childcare Scheme does not sound as simple as ‘parents put money in’ and the Government ‘top it up’. It is a very complex scheme which is going to require very sophisticated systems which will come at a significant cost. A huge investment for the Tax payer.
The Government has opted not to use existing providers that have a wealth of knowledge and experience of the market but will be using NS&I, an organisation that has no experience in delivering such a scheme, this itself could potentially have disastrous consequences. A closed market with no competition will not drive service levels up as in the current industry.
The Government could have achieved the same goal by keeping the existing childcare voucher scheme and increasing the maximum voucher value, implementing childcare vouchers as mandatory benefit to be offered by employers and opening the scheme up to self employed.
Therefore no requirement for a new scheme, new and untested systems and huge investment.
Our message to parents is to apply for the childcare vouchers now while you have the opportunity to do so and then in autumn 2015 decide on which scheme is better for them and switch if necessary.
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