The Employer-Supported Childcare Voucher Scheme.

What you should know.

  • With news that the launch of the Government’s new Tax-Free Childcare (TFC) system will be delayed until 2017, businesses now have more time to embrace the forthcoming changes and address the implications of it for them.
  • The change will mean the loss of tax and NI savings for both employer and employee alike
  • All working parents currently claiming will have the choice of staying in the existing scheme should they wish – but it will close to new applicants
  • The government will replace it with a scheme known as Tax-Free Childcare (TFC)

Your company will lose money, so you must take action now

There will be a financial impact for your company if you are currently providing an employer-supported childcare voucher scheme, because your current employer National Insurance (NI) savings will be eroded by the forthcoming changes.

Despite this, the new Tax-Free Childcare scheme is potentially beneficial for your employees, and providing them with good support and advice now will ensure your company and your workforce benefit fully from the changes.

There are things to consider prior to an employee switching to the TFC scheme:

  • Only parents that are currently claiming employer-supported childcare vouchers will have the choice come early 2017 as to which scheme they prefer, so employees should be encouraged to join the existing scheme now
  • Once employees have switched to TFC they are unable to return to the employer-supported childcare voucher scheme
  • Tax-Free Childcare will run directly between the parent and the scheme administrator NS&I and there will be no further involvement with the employer
  • The new scheme offers no financial benefit to the employer – another reason for companies to encourage employees to join the existing scheme prior to the change
  • About

    About Childcare Vouchers

    Employer-supported childcare vouchers are tax and NI exempt and have been available since 2005.

    They are a popular benefit for working parents, enabling them to claim up to £55 per week, or £243 per month (dependent on tax band) in the form of an e-voucher. This can then be used to pay towards any registered childcare costs for children up to the age of 15 (16 if the child is registered disabled).

    Childcare vouchers are both government and HMRC approved. They benefit basic, higher and additional rate tax payers and offer savings of up to £1,866 per year, per family, should both parents claim.

  • How this affects me

    How does this affect me as an employer?

    The current scheme is a huge benefit for many employers.

    It enables companies to save employer National Insurance contributions of up to 13.8% on the total value of the vouchers claimed by staff. With an average take-up of 10% of the workforce and a monthly voucher value per employee of around £200 this offers considerable savings back to the organisation. Employers are likely to see a significant drop in the number of parents claiming childcare vouchers from early 2017 and many companies are already considering additional salary sacrifice schemes to replace this loss in revenue.

    It is recommended that you work closely with your current childcare voucher provider as soon as possible:

    • To promote your current scheme and increase employee take-up to a maximum
    • To educate employees about the forthcoming changes

    Employees can receive childcare vouchers for as little as £10 per pay period and providing they do so between now and early 2017 they will be entitled to continue on the current voucher scheme after this time.

    Your staff will have many questions relating to the new scheme and your current childcare voucher provider should be expected to offer a range of marketing material in order to advise and support you and your employees during the upcoming changes. Details can also be obtained directly from HMRC, or contact P&MM today for further advice

  • How this affects my employees

    How does this affect my employees?

    Employer-supported childcare vouchers are non-taxable and NI exempt up to £243 per month and offer a potential saving of up to £933 per parent, per annum (subject to individual circumstances). Currently these vouchers can be used to pay towards any form of registered childcare for children up to the age of 15 (16 if the child is registered disabled). By comparison, the new Tax-Free Childcare scheme is potentially worth up to £2,000 per child per year.

    When the new scheme launches, some parents will be better off financially in the current employer-supported scheme, whilst others will be better off using the new Tax-Free Childcare scheme. This will depend on the parent’s individual circumstances. The following table illustrates some example circumstances in which the family will be better off using the current employer-supported childcare voucher scheme rather than the new Tax-Free Childcare scheme.

    Tax Table

    It will be important for you to provide your employees with the best possible support and advice prior to the changes in early 2017, and to encourage them to join your existing employer-supported scheme prior to the changes. Once the Tax-Free Childcare is introduced, your employees will then be in a position to assess which scheme suits their personal circumstances the best.

  • My options

    What are my options as an employer?

    The new Tax-Free Childcare (TFC) scheme will be introduced in early 2017 and will impact your organisation and your employees. Those companies and HR teams that embrace these changes by putting in place initiatives to educate their employees and introduce new benefits will gain the greatest advantage.

    Recommendations for making the most of the forthcoming changes:

    • Introduce a scheme: If you do not currently have an employer-supported childcare voucher scheme in place then introduce a scheme before early 2017 – it will provide the best possible choice for your employees and will save money for your organisation.
    • Push your scheme promotion: If you have a scheme in place, ensure that you promote childcare vouchers fully to your employees in the coming weeks to encourage maximum uptake before the changes.
    • Educate your employees: Providing good support and advice to your employees during the changes will be vital – many parents will be confused by their options, and will look to you as their employer to provide guidance. We have user-friendly tools such as an employee calculator to help you provide accurate advice.
    • Introduce new benefits: This is the perfect time and opportunity for you to review your employee benefits range. There are many popular new salary sacrifice schemes which can generate savings for your company to replace your childcare voucher NI saving reduction, and of course can enhance the benefits available to your workforce. P&MM Employee Benefits provide an award-winning range of benefits. Review our range here >>
10 Things you should know about tax-free childcare

 

Parents:

Are you a parent seeking advice? Our website provides advice for employers regarding the upcoming childcare changes. If you are a parent seeking independent advice, we recommend visiting Working Families by clicking here or calling them on 0300 012 0312

Childcare Voucher Changes PDF

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