Tax-Free Childcare and childcare vouchers are both government schemes designed to help with childcare costs. In most cases they are only useful if your income is too high to benefit from Tax Credits or Universal Credit.
Childcare vouchers are no longer available to new applicants. This article is for those who already get childcare vouchers and are considering whether to switch to Tax-Free Childcare.
Tax-Free Childcare is a government scheme that pays 20% of childcare costs up to a maximum of £2,000 each year. Tax-Free Childcare is a UK-wide scheme covering England, Scotland, Wales and Northern Ireland.
The scheme is open to all parents of children under 12 (or under 17 if disabled). Eligible parents can open a childcare account which is topped up by the government to cover 20% of childcare costs.
Tax-Free Childcare was introduced as an alternative to childcare vouchers. Childcare vouchers allow you to avoid paying National Insurance Contributions and income tax on the proportion of your income that is spent on childcare.
It is not possible to use both schemes at the same time and if you have a partner, you and your partner must both use the same scheme. If you or your partner already get childcare vouchers, you can continue receiving vouchers as long as:
- you stay with the same employer and they continue to run the scheme
- you don’t take an unpaid career break of longer than a year
- you don’t switch to the childcare voucher scheme.
What are the main differences?
|Childcare vouchers (Not available for new claims)||Tax-Free Childcare|
|Childcare vouchers are administered by your employer and not all employers offer the scheme.||Tax-Free Childcare is administered by the government and does not involve your employer.|
|Childcare vouchers are available to parents with children under 16 (or 17 if disabled).||Tax-Free Childcare is available to parents with children under 12 (or 17 if disabled).|
|Childcare vouchers allow each parent to not pay some income tax and national insurance. The money you save depends on when you joined the scheme and whether you are a basic, higher rate or additional rate tax payer.||Tax-Free Childcare offers a flat rate saving of 20% of childcare costs with a maximum government top-up of £2,000 per year per child.|
|Childcare vouchers can be used together with Tax Credits or Universal Credit, but most parents who are eligible for Tax Credits or UC are better off not using the scheme.||Tax-Free Childcare cannot be used if you are receiving Universal Credit or Tax Credits. Applying for Tax-Free childcare will immediately end your Tax Credit, and you will not be eligible for Tax-Free Childcare if you get UC.|
|Not available for new applicants after October 2018.||Tax-Free Childcare will continue to be available for the foreseeable future.|
Which scheme will make me better off?
The government has an online calculator which will work out how much you can save on childcare costs. It compares childcare vouchers, Tax-Free Childcare and Tax Credits. It does not compare Universal Credit, so you should separately check your entitlement (bearing in mind that you cannot use Tax-Free Childcare and UC, and claiming UC will stop your Tax Credits and other benefits replaced by UC). Most parents who are eligible for Tax Credits or Universal Credit are better off not using childcare vouchers or Tax-Free Childcare.
This advice applies in England, Wales, and Scotland. If you live in another part of the UK, the law may differ. Please call our helpline for more details.
If you have further questions and would like to contact our advice team please use our advice contact form below or call us.