Government launches consultation on new tax-free childcare scheme

Government launches consultation on new tax-free childcare scheme


Author: Kevin McCavish

On 5 August the Government launched a consultation on a new type of tax-free childcare scheme which is expected to be introduced from Autumn 2015. The consultation closes on 14 October 2013.

What is on offer?

Under the new scheme ("tax-free childcare"), parents will register with a voucher provider and open an online account. The Government will then top-up payments into this account at a rate of 20p for every 80p that families pay in, subject to an annual limit of £1,200 per child. This is equivalent to basic rate tax relief of up to £6,000 a year.

Parents will then be able to use their credit with a qualifying childcare provider of their choice.

Will higher earners be eligible?

Households in which both parents work but do not receive support through tax credits (or Universal Credit) will be eligible for tax-free childcare, so long as neither parent is an additional rate (45%) taxpayer.

What are the advantages of the new scheme?

Unlike the current system of employer-supported childcare which is only available to some employees, tax-free childcare will be available to all working families, and will not depend on employers offering the scheme.

What are the disadvantages of the new scheme?

From an employer's perspective, tax-free childcare will not involve salary sacrifice, so the current National Insurance Contribution advantages enjoyed by participating employers will no longer be available.

Existing employer-supported childcare schemes will be phased out, though existing members of employer-supported childcare will be able to choose whether to remain on their current scheme or move to tax-free childcare. Note that workplace nurseries are not affected by these proposals.

What is the current time-scale for this change?

Tax-free childcare will be phased in from Autumn 2015. From the first year of operation, all children up to the age of 5 - and disabled children under the age of 17 - will be eligible. The scheme will extend over time to include all children under 12.

Further information

Consultation Paper on Tax-Free Childcare