The Government's Childcare Vouchers scheme – which is operated through employers and allows you to pay for childcare from your pre-tax salary – is closing to new entrants on 5 April. But if you're not already enrolled and want to take advantage, you need to apply NOW to allow enough time for your application to go through payroll.
Millions of parents are potentially eligible for childcare vouchers and a significant proportion of these are better off with vouchers than the Tax-Free Childcare scheme which is replacing them – so many families could lose out on £1,000s if they don't act soon. (For others though, Tax-Free Childcare can win. See our full Which is best? analysis below.)
For full info on how the scheme works, and the pros and cons, see our Childcare Vouchers guide.
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What are childcare vouchers?
Childcare vouchers can save many parents with kids aged up to 15 (16 if they're disabled) over £1,000 a year on childcare as they allow you to pay for childcare out of your pre-tax and national insurance income.
They are only available through your employer, but lots of companies sign up to the scheme. The vouchers can be used to pay for childcare including nurseries, childminders and after-school clubs.
Why you need to apply NOW
The deadline for new applications to the Childcare Vouchers scheme is Thursday 5 April. After that, parents who are not already signed up for childcare vouchers will not be able to get them.
That's because the Government has rolled out Tax-Free Childcare – replacing childcare vouchers – which gives eligible parents an extra 20% towards childcare costs, up to a max of £2,000 per child per year.
However, the Childcare Voucher Providers Association (CVPA) is warning that many parents are unaware that to beat the childcare vouchers deadline, you don't just need to apply by 5 April, you need to have actually made a salary sacrifice and received the vouchers (ie, have given up salary for the vouchers). So you need to act fast – and for a few it could already be too late.
Many employers will sort their April payroll in February or March, so you need to tell your employer quickly if you want the vouchers so you don't miss the 5 April deadline. Even those who get paid weekly need to act fast as payroll could still be processed a month in advance.
After 5 April, if you're a member you'll be able to continue to use childcare vouchers for as long as your employer runs the scheme, or as long as you stay with your employer.
If you don't sign up in time, or you leave your employer, the only option left is to use Tax-Free Childcare. But many parents, including families with one stay-at-home parent, won't be eligible under the new scheme. See Tax-Free Childcare for more information.
It can be difficult to know which scheme you'd be better off with – it all depends on your personal circumstances. But you have to settle for one as you can't apply for both.
According to the independent charity Employers For Childcare, 66% of the parents who go to it for advice are better off with childcare vouchers, tax credits, or some combination of the two, rather than Tax-Free Childcare (families cannot claim tax credits or universal credit benefits while using the new scheme but can with childcare vouchers).
See full help in our Childcare vouchers vs Tax-Free Childcare analysis. But in brief, childcare vouchers win for:
- 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 annual 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 annual 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.
- Higher earners, as anyone earning £100,000+ a year (or in a couple where one earns £100,000+) isn't eligible for Tax-Free Childcare, while these high earners can get childcare vouchers.
Tax-Free Childcare wins over childcare vouchers for:
- Self-employed people 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. Meanwhile with childcare vouchers you only get a set amount regardless of how many children you have.
How to apply for childcare vouchers
The process will vary depending on who you work for. Yet in short, you need to:
- Ask your HR department if they offer childcare vouchers.
- If they do, you'll need to complete a salary sacrifice agreement. Your employer will help you do this. If you're on basic-rate tax, it works something like this...
You give up £1,000 of PRE-TAX salary in exchange for £1,000 of childcare vouchers. As you would have paid tax and National Insurance on that salary though, it would only have been worth £700ish in your pocket. So by exchanging salary for vouchers, you're about £300 better off.
- After your application has been submitted to your employer, it will reduce your salary in the next payroll by the requested amount and arrange for vouchers to be provided to you.
What does the CVPA say?
Jacquie Mills, chair of the CVPA, said many parents are at risk of missing out: "It all depends on when the employer's payroll is processed – many employers account for their April payroll in February with the rest accounting in March. If a parent's employer has already processed the April payroll, the parent in question will not be recognised as an 'official childcare vouchers user' – an application alone is insufficient.
"The Government has provided very little guidance to employers and parents about the phasing out of the scheme, specifically how the deadline for registration on 5 April will affect them. The lack of effective communication about this deadline means parents are at risk of losing hundreds of pounds' worth of childcare support."
What does HMRC say?
HM Revenue & Customs, which runs the Childcare Vouchers scheme, says it has always been clear that it's closing to new entrants in April and that parents need to have received their first voucher before 5 April. It says: "You can keep getting vouchers if you've joined a scheme and get your first voucher by 5 April 2018.
"Some childcare voucher providers will be contacting employees to alert them to the scheme closing."