Is tax-free childcare better than the childcare voucher scheme?
With the tax-free childcare scheme having replaced the childcare voucher scheme last year, are families any better off?
This is everything you need to know about how tax-free childcare compares to the childcare voucher scheme.
How does tax-free childcare work?
With tax-free childcare, you can get up to £500 every three months, which equates to up to £2,000 a year, for each of your children in order to help with the costs of childcare.
If you claim tax-free childcare, the government will pay £2 for every £8 you pay your childcare provider. This is paid via an online childcare account that you will need to set up for your child.
You can use tax-free childcare for:
- Childminders, nurseries and nannies
- After school clubs and play schemes
- Home care agencies
Your childcare provider must also be signed up to the scheme before you can pay them and benefit from tax-free childcare.
You can apply online here on the government website for tax-free childcare.
You’ll need your details, and your partner’s details if applicable, including:
- National Insurance Number
- Unique Taxpayer Reference (UTR) if you’re self employed
As part of the application, you’ll find out if you’re eligible for both tax free childcare and 30 hours of free childcare too.
How did the childcare voucher scheme work?
Parents using childcare vouchers could use them as a method of payment, including:
- Extra-curricular activities
- After school clubs
With the childcare voucher scheme now closed to new applicants, if you previously were on this scheme on or before 4 October 2018, you may still be able to continue getting the vouchers.
You will keep getting the vouchers if:
- Your wages were adjusted on or before 4 October 2018
- You have stayed with the same employer and they continue to run the scheme
- You do not take an unpaid career break of longer than a year
The vouchers are only available if your employer offers them and your child is 15 or younger (or 16 if disabled).
Which is better?
There are pros and cons to each of the schemes and what works best for you depends on how much you earn and how much you pay for childcare.
This is how they compare:
Tax-free: Anyone can apply, whether employed or self-employed.
Childcare vouchers: Only available if an employer still offers them.
Tax-free: £131 per week minimum earning. If a couple, both parents must work.
Childcare vouchers: No minimum earning required. One parent needs to work.
Tax-free: Your child’s maximum age is 11, or 16 if disabled.
Childcare vouchers: Your child’s maximum age is 15, or 16 if disabled.
Tax-free: Maximum income of £100,000 per parent.
Childcare vouchers: No income limit.
MoneySavingExpert states that tax-free childcare is the better option for families with more children and higher childcare costs, whereas the childcare vouchers work better for families with fewer kids and lower childcare costs.