Working parents across the UK will be delighted to hear that the Government has agreed to a six-month extension of the childcare voucher scheme.
It has been estimated that around 80 per cent of working parents may be better off using Childcare Vouchers rather than the new tax-free childcare scheme.
The voucher scheme allows employees to gain access to funding for childcare through their employer and, in return, employers can save up to £402 per year in National Insurance Contributions for every employee who signs up.
Following a number of debates in Parliament, the Secretary of State for Education, Damian Hinds, confirmed that the Government has agreed to a six-month extension of the Childcare Voucher scheme. Therefore the scheme will not be closing in April as previously reported.
The Government’s extension to the popular scheme was announced following criticism, which claimed that the tax-free childcare scheme is poorly understood and its rollout has been botched.
The childcare voucher scheme is available to all working parents in the UK and allows parents to take up to £55 each week from their salary before tax and National Insurance, or £243 a month, to spend on childcare no matter how many children they have, as long as the parent is a basic-rate taxpayer.
However, using the alternative tax-free childcare scheme parents have 20 per cent of their childcare costs met by the Government each year, up to a limit of £2,000 a year per child, or £4,000 if a child is disabled.
This scheme is open to self-employed people, who are excluded from the childcare voucher arrangements.
Subject to eligibility, both parents (if they are together) must be working 16 hours a week and paid at least the National Living Wage of £7.83 an hour, if over 25, or £125.28 a week to receive tax-free childcare.
For families within the basic-rate tax bracket who qualify for either scheme, anyone who spends less than £9,336 in total on childcare would likely be better off with vouchers. The same goes for those who pay the higher tax rate and spend less than £6,252 in total.
However, families with a larger number of children are more likely to benefit from tax-free childcare, as the system works on a per-child basis rather than per parent.
Anyone who is claiming tax credits or universal credit or if either parent earns more than £100,000 will not be eligible for tax-free childcare.
The two schemes cannot be used in conjunction with one another, but either can be used alongside the 15 or 30 hours of free childcare offered to children aged three and four.