The Queen’s speech, in early June this year, included plans for this new scheme to help working parents with their childcare costs.
The new scheme, called Tax-free Childcare (TFC), will launch in autumn 2015 and will work very differently to the existing Employer-Supported Childcare (ESC) scheme, commonly referred to as childcare vouchers. At present, it looks like TFC will be run by the Government, through HMRC and National Savings & Investments (NS&I).
TFC will work very differently to how childcare vouchers work today
Both parents have to be in work to be eligible for TFC, unless they are a family with a lone working parent.
Unlike the current ESC scheme, TFC is also open to self-employed parents.
Both parents must earn less than £150,000 a year and not be receiving the childcare element of Universal Credit.
Parents take part in the scheme by going direct to the TFC provider and not through their employer.
The current scheme works as a salary sacrifice deduction, however parents will pay into TFC from their bank accounts.
Parents will contribute directly to the TFC provider (e.g. by BACS or Direct Debit) and, for every 80p a parent pays in, the Government pays in 20p, up to a maximum £2,000 per child, per year.
Parents will only be able to use TFC to pay for childcare for children up to theage of 12 (or age 17 for children with disabilities) – the current scheme is open to children aged 15, or 16 if registered disabled.
Funds will be ring-fenced on a per child basis, so parents will also have to operate a different sub-account for each child.
Parents will also have to reconfirm their eligibility for TFC on a quarterly basis or risk losing the Government top up payment.
The existing childcare voucher scheme will stay open for parents who use it now
Childcare voucher schemes will continue to run for parents already using them, but new parents won’t be able to join their employer’s childcare voucher scheme once TFC launches.
Some parents will be better off with the existing childcare voucher scheme
Over one in five parents (that would not be eligible for TFC) who took part in a recent survey by Computershare Voucher Services said that they or their partner would have to give up work if they did not have access to childcare vouchers. A further 38% responded that they or their parents would have to reduce their hours.