Written by Chris Rutter
Published on April 5, 2018

Although originally scheduled to cease from April 2018, the Employer Supported Childcare (ESC) Voucher Scheme (informally known as childcare vouchers) has been extended to allow for new subscriptions until October 2018. From October 2018, no new entrants will be accepted into the ESC which will be superseded by Tax-Free Childcare (TFC).

Existing ESC users will be allowed to continue using the scheme until either their youngest child reaches 15 (16 if disabled), their employer discontinues the scheme or they change employers.

How is tax free childcare different to childcare vouchers?

Childcare vouchers operates via salary exchange to offer potential savings of £1,866 a year to a two parent household. If an employer isn’t involved in a childcare vouchers scheme, or working status is self-employed – childcare vouchers are not accessible

Tax free childcare does not depend on employer involvement and does not operate via salary exchange. Instead, the government will pay employees £2 for every £8 they spend on childcare up to £2,000 per child each year (£4,000 for disabled children).

The key changes of the new TFC plan are as follows:

  • Both parents must work to be eligible
  • Subsidy is per child, not per parent
  • Scheme is available for children up to 12 years old (17 if disabled)
  • Self-employed are eligible
  • No direct employer involvement

Which option is best for employees?

For employees, the circumstances and criteria surrounding both schemes are different with pros and cons on both sides. It would be best for employees to assess their own personal circumstances to decide which scheme will benefit them best.

How will this affect employers?

Gradually, employers will cease to deal with childcare vouchers altogether. Some employers will see this as an administrative relief. However, the move towards TFC will see NI savings cease for employers.

Under the current childcare vouchers scheme, employers can save the following amounts of money per employee which will stop under the new TFC scheme:

  • Basic-rate taxpayer: £402.40 per year
  • High-rate taxpayer: £205.34 per year
  • Additional-rate taxpayer: £182.16 per year