Surprise extension to the childcare voucher scheme

In a surprise move, the Government has announced an extension of the existing childcare voucher (CCV) scheme, which will now remain open to new entrants until October 2018. The Government rolled out its new Tax-Free Childcare scheme earlier this year, but it is thought that concerns over the operation of the new scheme may be behind the extension.

However, some voucher providers have claimed that employees will lose out under the new Tax-Free Childcare scheme which could suggest that operational difficulties may not be the full reason behind low take up.

Regardless of the underlying reason for the extension, this gives employees and employers a window of opportunity to consider whether the CCV or the tax-free scheme is better for them before making an application ahead of the new October deadline. Once in the CCV scheme employees will be able to continue receiving vouchers for as long as they continue to qualify and their employer continues to operate the scheme.

Big winners under the new tax-free scheme are the self-employed, who cannot currently use the voucher scheme, and parents with more than one child resulting in high childcare costs. With childcare vouchers, the amount of financial assistance that you are entitled to doesn’t change based on the number of children you have, but rather is determined by salary and tax levels. But financial assistance under the tax-free childcare scheme increases based on the number of children involved, providing help for 20 per cent of childcare costs, and can save participants up to £2,000 per child each year.

Some families will not qualify under the new scheme. These include couples where only one parent works, those with children between the ages of 12 and 15, and those earning more than £100,000. All of these qualify under the CCV scheme but cannot benefit from the Tax-Free Childcare scheme.

For those eligible for both schemes, it’s a case of crunching the numbers to see which scheme gives the greater financial benefit. In general, families with fewer children and lower childcare costs may be better off under the CCV scheme where the maximum benefit is £930 per annum per parent, whereas those with more children and higher costs may benefit more under the new scheme.