Self-employed parents and those with more than one child who've been waiting for the Government's new Tax-Free Childcare scheme to launch this autumn will now have to wait till 2017, following a Supreme Court judgment today.
Two providers of the existing Employer Supported Childcare voucher scheme mounted a legal challenge against the Government's new scheme following concerns about how it would be delivered and the effect it would have on parents trying to access childcare support.
But the Supreme Court has today thrown out this argument and confirmed the scheme is "lawful". However, as the court placed a suspension on the scheme being developed during the 15-month legal proceedings, the new Tax-Free Childcare scheme now won't come into force until 2017 – a delay of over a year.
The news is a blow for those who will better off under the new scheme, but it will benefit those who gain more from the existing provision as they'll be able to continue using it up until it's replaced.
The existing childcare scheme will also remain open to new entrants until Tax-Free Childcare is launched. For more on how both schemes work, see our Childcare Vouchers guide.
'We are now pressing ahead with the scheme'
The exchequer secretary to the Treasury, Damian Hinds says: "We are pleased that the Government's proposals for delivering Tax-Free Childcare have been found to be clearly lawful. This government is absolutely clear on the importance of supporting families with their childcare costs.
"It is disappointing that some organisations involved in the existing scheme felt the need to take and persist in this costly and wasteful course of action, which has led to a delay in the launch of Tax-Free Childcare.
"We are now pressing ahead with the scheme as part of our ongoing commitment to support working families."
What are the two schemes?
Tax-Free Childcare: Under the Government's new Tax-Free Childcare scheme, which will now launch in "early 2017" – no specific date has been given by the Government – eligible families will get 20% of their annual childcare costs paid for by the Government.
The way it works is that for every 80p you pay into a newly-created Childcare Account, the Government will contribute 20p. This could mean up to £2,000 per child (the scheme assumes a maximum of £10,000 per year childcare costs per child. If you pay more, you won't get more help).
But crucially, both parents need to be working in order to qualify.
Employer Supported Childcare: The childcare vouchers scheme on the other hand enables many taxpayers with kids aged up to 15 to pay for childcare with vouchers each month via salary sacrifice from their employer.
As an example, you give up £1,000 of salary, worth £700ish in your pocket after tax and National Insurance. You get £1,000 of childcare vouchers in return. This means you're £300 better off per £1,000. This is per parent, so the maximum two [basic rate tax paying] parents could get is £486 of vouchers each month.
So which scheme is best for me?
For a full rundown on the winners and losers see our Childcare Vouchers guide. But in brief:
Those who win Tax-Free Childcare:
- Self-employed people or couples who earn less than £150,000 each, as they're eligible for Tax-Free Childcare, but can't get childcare vouchers.
- Parents with more than one child and high childcare costs, as the help available goes up with the number of children. There's a limit for childcare vouchers, which isn't dependent on the number of children.
Those who win with childcare vouchers:
- Couples where one parent doesn't work, as they're not eligible for Tax-Free Childcare, but the employed parent is eligible for vouchers (provided their employer offers a scheme).
- Basic-rate taxpayer parents with total childcare costs of £9,336 or less. Under this amount, the saving you make with childcare vouchers exceeds the saving you can make with Tax-Free Childcare.
- Higher-rate taxpayer parents with total childcare costs of £6,252 or less. Under this amount, the saving you make with childcare vouchers exceeds the saving you can make with Tax-Free Childcare.
- Additional-rate taxpayers, as anyone earning £150,000+ isn't eligible for the scheme, whereas additional-rate taxpayers can get childcare vouchers.