Tax-free childcare vs childcare vouchers – which one should parents go for?
CHILDCARE costs in the UK are among the most expensive in the world, but there is a new government scheme that parents can take advantage of to cut costs.
Tax-free childcare will eventually replace the voucher system and the government claims it could save parents £2,000 a year in fees.
The scheme has been running alongside the Childcare Vouchers scheme since it launched in April 2017.
But glitches in the Childcare Choices website have left some parents out of pocket while they struggle to open an account.
The old system was supposed to be closed to new parents by the end of this month, but MPs have now decided to delay the scheme for another six months.
If you're already a member of the vouchers scheme, you can continue to use it, but parents won't be able to take advantage of both schemes.
So which should you choose?
We look at both schemes below, and weigh up the benefits for different families. A lot depends on how many kids you have, how much tax you pay, and how much you pay for childcare.
Tax-free childcare
The government will pay parents 20p for every 80p they spend on childcare, with a maximum contribution of £2,000 a year per child.
Unlike the voucher system, the new one gives access to parents who are self-employed.
Childcare vouchers
The current childcare scheme is offered to parents through their employers, allowing them to pay for childcare costs via salary sacrifice.
This is because you get £2,000 per child with the Tax-Free Childcare scheme, so if you have four kids that's £8,000.
With childcare vouchers you can save up to £930 per parent, per year, because of tax and National Insurance savings.
Even so, if you have fewer children and lower childcare costs, you'll be better off with the childcare vouchers.
While you get 20 per cent off childcare costs with the Tax-Free Childcare scheme, you could get between 32 per cent and 47 per cent off with the vouchers, depending on your tax status, Martin Lewis says.
So, if you’ve got big costs Tax-Free Childcare is best, if you’ve got smaller costs, childcare vouchers win.
Also, bear in mind that the new scheme will only be available to parents with children up to the age of 12, whereas the old system is available for kids up to the age of 15.
30 free hours of childcare
CHILDREN aged three and four are entitled to 15 hours of free early education a week, and from September this will double to 30 hours a week - in a move that will save parents up to £5,000 per child.
The 30 hours is only free for 38 weeks per year, rather than 52, and the hours must be spread over at least three days a week.
To be eligible, both parents must be working, or the only parent in a one-parent family is working.
Each parent must have an annual income of less than £100,000.
While not everyone is eligible for the additional 15 hours of free childcare, everyone will still receive the minimum 15 hours that is currently available.
Child benefit
Child Benefit is a tax-free benefit paid to most people with children under the age of 16 (or 20 if in full-time education) in the UK.
You do not need to have paid any National Insurance contributions to get Child Benefit and you can get it providing neither parent earns less than £50,000.
Parents will get £20.70 a week for the oldest child, and £13.70 a week for each subsequent children.
Child tax credit
If you're on a low income you could be eligible for child tax credit for each child if they're under the age of 16 (or 20 if in full-time education).
Dependent on your level of income, you can get up to £122.50 per week for one child and £210 for two or more children.
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