What are the proposed changes?

The government have proposed these changes to, as they put it, “make work pay”. Here are some of the key rules for the new scheme:

  • It will commence in Autumn 2015 (running alongside existing childcare voucher schemes)
  • Both parents must be working for the new benefit to be claimed by the household
  • The benefit (or relief) can be claimed per child, rather than per household
  • The scheme will be available for Children up to the age of 12, or to age 17 for children with disabilities
  • The scheme will be run via an online account, which the Government will top-up at a rate of 20p for every 80p that families pay in, by paying directly into the account for the employee too
  • The level of childcare costs covered by the new scheme has been increased since the original announcement. Initially, a 20% tax break was expected on the first £6,000 of childcare costs, providing savings of up to £1,200 per child. This has now been extended to cover annual childcare costs of up to £10,000, providing savings of up to £2,000 per child.
  • The new scheme will only be available to families where both parents earns less than £150,000, as opposed to the current scheme which allows high earners to enjoy tax savings at the same level as basic-rate taxpayers.
  • The new arrangement will not provide any National Insurance savings (currently worth up to 12% for basic-rate taxpayers and up to 13.8% for employers) and will not need to be an employer sponsored arrangement. The new scheme will continue to be for registered childcare only.

What does this mean for working parents?

There is no immediate change and employees can remain in the current voucher scheme for as long as their employer continues to offer it. However, if the employee moves employers they will no longer be entitled to employer-supported childcare. A family cannot use both schemes at the same time.

Any employee who is new to the scheme (new parents) from 2015 will only be able to participate in the new arrangement.

Currently there are a number of questions that haven’t been clarified, but we are working to answer these and will let you know more as the detail comes to light.

What are the implications for employers?

For employers, there will be a loss in salary sacrifice savings generated through childcare provision, and they will also need to adjust their administration and communication processes accordingly.

Most employers are likely to run the new childcare scheme alongside the old voucher scheme to give their existing employees choice and continue to take advantage of the National Insurance savings for as long as they are available.

House view

While this is certainly going to mean changes will be coming in the future, for now it is business-as-usual, and we will continue to support clients with their childcare voucher schemes for the foreseeable future. In order to be prepared for the transition the immediate action that you need to take is to understand the impact of the reduced National Insurance contribution savings and the wider implications this will have. It is also important to engage with all employees, both those already in the scheme and those who aren’t currently using Childcare Vouchers, as once the changes take effect those who would be better off in the old, or those who aren’t eligible for the new model, will no longer be able to join the current Childcare Voucher schemes that exist.