Childcare Scheme Glitches Cause Delay

Smiling bearded young man in blue denim shirt paints fruit with a child

The government’s new tax-free childcare scheme, due to commence in April, has been delayed because of website glitches. This means that it will still be possible to join the Childcare Vouchers scheme for a further six months.

The Childcare Vouchers scheme lets parents pay for childcare usually by way of an untaxed “salary sacrifice”. Payments could be up to £243 per month, paid direct to the childcare provider from an employee’s wages.  This allows the parent to make a saving of tax and national insurance.

The new scheme aims to give parents up to £2,000 per child per year by way of childcare assistance. A parent makes a payment in to the account and the government tops that up by up to 20%.

Some parents using the scheme so far have not received top ups at all and have found themselves out of pocket as they are paying up front for their childcare without any assistance.

Equally some parents are finding it difficult to work out which scheme would see them “better off”.

Households where just one parent works, and the self-employed, can benefit from the Childcare Vouchers Scheme for an additional six months due to the government’s technical issues. The new “tax-free scheme” will not be open to these parents.

The new scheme will assist parents with more than one child and high childcare costs as the payments are per child rather than being set per month.

Employees can still therefore ask employers if they may join the scheme for now. Once the new scheme launches, employers will not be able to offer a childcare vouchers to new employees or employees who leave the scheme for more than a year.

Currently, with the Childcare Vouchers scheme employees who pay tax at 40% and sacrifice the full amount can save something in the region of £1,225 per year in tax and national insurance. Equally, employers can save up to £402 each year via reduced National Insurance contributions, so a change in the system may have a ‘knock on’ effect for some businesses.

About the author

Liz Henwood is an associate based at our Sheffield city centre office, specialising in commercial litigation.

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