Small business guide to new Tax Free Childcare

Following the launch of Tax Free Childcare at the end of April 2017, there are a few changes that your employees who are working parents should know about.

The new scheme is estimated to benefit two million households, helping with the cost of childcare and encouraging more parents to work. This new scheme will gradually replace the old Childcare Vouchers system.

New scheme – key facts

  • Anyone with a child under the age of four is eligible. Those who are under four on 31 August 2017 and parents of disabled children aged under 17 will enter the scheme first.
  • The new scheme requires parents to create an online account via the government’s new website
  • The current Childcare Voucher Scheme will stay open for new entrants until April 2018 (and will continue after this time for those using it but will be closed to new applicants).
  • Parents will have to weigh up which scheme works best for them and can use the government’s childcare calculator to work it out
  • As an employer, you won’t need to have any involvement in the new scheme as the new account will rely on the parents to set up and use.

Key differences

  • The new Tax Free Childcare Scheme doesn’t rely on employers to offer it, unlike the current Childcare Voucher Scheme. Any working family can use Tax Free Childcare, provided they meet the requirements below.
  • The new scheme is available to self-employed parents, unlike traditional Childcare Vouchers.
  • It’s also available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.
  • Parents, and others, can pay into the scheme at any time to build up a balance. Other family members can also contribute.
  • The process is designed to be simpler for users, allowing parents to re-evaluate their circumstances every three months and get an overview of the account for all their eligible children.
  • If circumstances change, parents can withdraw money at any time.

What this means for business owners

Independent IFA Guy Skinner of Citygate Consulting explains “The new scheme is of particular benefit to Directors within their own limited company as they can retain the freedom to remunerate themselves predominantly with dividends while still getting benefit from the tax savings for child care, unlike with child care vouchers. Additionally, those already in the child care voucher scheme SHOULDN’T neglect the new scheme, as it may well work out to be more favourable. Review your sums.”

The government have provided a useful summary page for parents. If you have any questions about childcare schemes, or any other flexible benefits, send us a message and we would be delighted to help. Check out our blog on how to set up a flexible benefits scheme at your business.