NEW TAX-FREE CHILDCARE SCHEME
For over 20 years, childcare vouchers have been provided via employer supported childcare voucher schemes (usually by way of a salary sacrifice). In 2015, the government announced it was going to introduce the Tax- Free Childcare scheme as a new way to help parents fund their childcare needs. The new scheme was due to go live in autumn 2015 but it faced a legal challenge and ended up at the Supreme Court. Although it was ruled that the new Tax-Free Childcare scheme is legal, all work on it had to be stopped during the legal proceedings. This caused a significant delay to its introduction.
On 21 April 2017, the new Tax-Free Childcare scheme was finally launched. To qualify, both parents have to be in work and each expecting to earn (on average) at least £120 a week. Whilst the scheme will eventually be available to pay for childcare costs for children under 12 (or under 17 for disabled children), it is being rolled out in stages and initially will only be made available for employees with children aged under four on 31st August 2017.
The good news for you as an employer is, you do not have to do anything, as your eligible employees should automatically receive a letter from the HMRC inviting them to register for the new scheme. Employees who are already in an employer supported childcare voucher scheme are not obliged to switch over to the new Tax-Free Childcare scheme, as these will continue to run as normal providing you continue to offer the scheme. However, your current scheme should be closed to new applicants in April 2018.
So how does the new scheme work? If an employee opts to register for the new Tax-Free Childcare scheme, they can open a special online savings account. The government will add £2 for every £8 saved, up to a maximum of £2,000 per year, per child aged eleven or under, or £4,000 for disabled children until they reach 17. Employees should be aware however, that they cannot use the new Tax-Free Childcare at the same time as an employer supported childcare voucher scheme.
If you would like further guidance on this matter, please call Practical HR on 01702 216573 or email email@example.com.