MSE News

New Tax-Free Childcare scheme: Will it work for you?

Michael Smith

Editor

19 March 2014

Almost two million working families will receive support for childcare costs under a new scheme confirmed in the Budget today. But will you be better or worse off? MoneySavingExpert.com analyses what it really means.

Under the Government's new Tax-Free Childcare scheme, working families will get an allowance of up to £2,000 per child to pay for the cost of childcare from autumn 2015. See the New Tax-Free Childcare scheme MSE News story for full details.

The scheme will be open to families where both parents work and earn up to £300,000 between them, or single parents earning less than £150,000. It'll enable parents to get a 20% rebate per child on the annual cost of childcare of up to £10,000.

The Tax-Free Childcare scheme will replace the existing childcare vouchers programme, which is only available when offered by an employer.

Our table below explains who would be better sticking with the existing childcare scheme, and who should move to the new one.

The majority of parents will benefit from the move. But those who are likely to be better off sticking with the current childcare vouchers scheme are couples where one parent doesn't work, as they won't be eligble for Tax-Free Childcare.

Key	Always likely to be the best option	Depends on no. of kids and when vouchers started	Never likely to be the best option

	Current childcare vouchers: Max gain		Tax-Free Childcare: The most you'll get
	Signed up before Apr 2011	Signed up after Apr 2011	One child	Two children
Single, employed parent
No income tax payable	-	-	£2,000 (3)	£4,000 (3)
Basic taxpayer	£933 (2)	£933 (2)	£2,000	£4,000
Higher taxpayer	£1,225	£624	£2,000	£4,000
Top taxpayer	£1,370	£620	-	-
Single, self-employed parent
No income tax payable	-	-	£2,000 (3)	£4,000 (3)
Basic taxpayer	-	-	£2,000	£4,000
Higher taxpayer	-	-	£2,000	£4,000
Top taxpayer	-	-	-	-
Couple: Both employed and eligible for vouchers
No income tax payable	-	-	£1,200 (3)	£2,400 (3)
Basic taxpayer	£1,866 (2)	£1,866 (2)	£2,000	£4,000
Higher taxpayer	£2,450	£1,248	£2,000	£4,000
Top taxpayer	£2,740	£1,240	£2,000 (4)	£4,000 (4)
Couple: One employed, one self-employed
No income tax payable	-	-	£1,200 (3)	£2,400 (3)
Basic taxpayer	£933 (2)	£930 (2)	£1,200	£2,400
Higher taxpayer	£1,225	£624	£2,000	£4,000
Top taxpayer	£1,370	£620	£2,000 (4)	£4,000 (4)
Couple: Both self-employed
No income tax payable	-	-	£2,000 (3)	£4,000 (3)
Basic taxpayer	-	-	£2,000	£4,000
Higher taxpayer	-	-	£2,000	£4,000
Top taxpayer	-	-	£2,000 (4)	£4,000 (4)
Couple: One employed, one not working
No income tax payable	-	-	-	-
Basic taxpayer	£930 (2)	£933 (2)	-	-
Higher taxpayer	£1,225	£624	-	-
Top taxpayer	£1,370	£620	-	-
(1) Amount increases by £2,000 for each child, there is no maximum. (2) You can only claim vouchers if you earn the national minimum wage, around £11,485 for 35 hours a week if you're over 21. (3) You need to be working, which is classed as earning at least £50/week. (4) Subject to a £300,000 manxium household income. Figures are based on 2013/14 income tax thresholds: No tax under £9,440. Basic £9,440 to £41,450. Higher £41,451 to £150,000. Top over £150,000. Amounts are a MAXIMUM annual gain based on salary sacrifice. Amounts may be lower.