September 20, 2018

Final Cut Off for Employees Joining Childcare Voucher Schemes

With effect from 4 October, your employees will no longer be able to join any Childcare Voucher scheme you may offer.

However, those who are already enrolled into the scheme will still be able to benefit from it, providing:

  • you continue to run the scheme
  • they remain in your employment
  • they do not take an unpaid break of more than a year
  • and their child remains eligible

Why does this cut off matter to my business?

The biggest impact will be the potential loss in employer NIC savings if employees leave your scheme to join Tax-Free Childcare (this could be up to £402 per year, per parent).

Also, you are potentially losing a ‘benefit’ which is important for both recruitment and retention. With average childcare costs now at £232.84 per week for full time cover, these are substantial considerations to consider.

And finally you should consider your status as a good employer, and the effect on your employer brand. In a booming jobs market, with just 0.38 candidates for every role, it is vital that employers have a compelling offer to entice and retain candidates.

What are the differences between Childcare Vouchers and Tax-Free Childcare?

Childcare Vouchers

Usually childcare vouchers are provided through a salary sacrifice scheme managed by the company. The voucher value is then made available to the employee through an online account, which they use to request payments to their chosen registered childcare providers.

The scheme applies to children under 16 (or under 17 if disabled).

With this scheme employees can save up to £933/year in tax and NIC, depending on their tax rate. Both parents may participate in the scheme, thus doubling their potential saving up to £1,866.

As an employer you also save up to £402/year in NIC for each employee that joins the scheme (up to13.8% of voucher value).

Tax-Free Childcare

Tax-Free Childcare is managed by the Government through NS&I (National Savings and Investments). Parents open an online account, pay money in, and use this to pay their registered childcare provider.

The Government ‘tops up’ the amount, so for every £8 paid by the parent, the Government will pay £2 (equivalent of 20%). However, parents must re-confirm their eligibility every three months.

This scheme applies to children under 12 (under 17 if disabled) who usually live with the parent.

As an employer you make no NIC savings under this scheme.

What should I do around childcare?

If you already have a scheme in place, reassure your employees that you are going to continue with it.

If not it may now be too late to set up a scheme, as employees’ salary adjustments need to be in place and they need to have received their vouchers by midnight on 4 October 2018.

At the very least, inform your employees of the changes and give them the following link so that they can see what’s happening and make their own choices – www.childcarechoices.co.uk.

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About the author

Elaine Pritchard

Elaine has a wealth of knowledge in producing contracts, training materials and other documentation as well as training other consultants. She piloted a scheme whereby she went on-site to act as a client’s HR Manager two days per week, whilst the post-holder was on maternity leave. Elaine also previously ran her own retail business for seven years, employing four people. Elaine is a field based consultant for Moorepay and provides on-site HR and Employment Law advice, consultancy and training services to our clients.