What’s happening to Childcare Vouchers in 2015?

The new tax relief and eligibility rules In the last Budget, the Government refined its proposals to make childcare more affordable for parents in the UK. The intention is to provide a programme that will eventually replace the current employer funded childcare vouchers whilst still offering parents tax savings on their childcare payments.

The new Government programme will be implemented from September 2015. Parents will be able to buy vouchers online to pay for their childcare. For every 80 pence that a parent puts in their childcare payment pot, the government will add an extra 20 pence. Parents will be able to use this to assist with up to £10,000 of childcare annually for each of their children.

So for example:

If a parent wishes to claim the full £10,000, they will pay £8000 into their childcare pot and the government will top it up with £2000.

The scheme supports childcare for under-12s only. Eligibility will end in the first week of September following your child's 11th birthday, unless the child is disabled, in which case they will qualify until they are 16.

Parents will be able to access the programme and manage their vouchers and accounts online. National Savings and Investments will manage the accounts and parents will only be able to make payments to Ofsted-regulated childcarers. Parents won’t be able to pay a friend or family members for babysitting with them.

The Government programme will operate on a quarterly basis. Parents will need to register for the programme online. They will be supported for 3 months at a time, and then every 3 months will have to reconfirm that they are eligible for the scheme. During each 3 months that they are

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Hi, I’m Cat and I am the Knowledgebase Manager at Reward Gateway. For the past three years I have specialised in supporting our clients in the implementation and facilitation of their salary sacrifice programmes. Ensuring that our Clients achieve optimum return on investment is a key objective of our team as well as ensuring that your employees are kept fully informed. With that in mind, there are some important changes affecting Childcare Vouchers in 2015. I’ve put together this handy fact sheet, which will make sure you are up to date on the impact of those changes. If you have any questions email catrin.lewis@rewardgateway.com or tweet @Cat_RGKnowledge.

supported, any changes, which would mean they are no longer be eligible for the programme, will not take effect until the quarterly review. If a parent becomes ineligible, they will still be able to use the full balance in their account for up to 2 years.

Each child will have its own account for the parent to pay into. If they want to pay in £2000 at the start of each quarter and have it topped up with £500 in one go they can do so. If a parent would prefer to do it with monthly payments instead this is also acceptable.

To keep it easy to remember when this needs to be done, the check will be done on the same 3-month schedule for all of the parents’ children.

If a parent wants to take money back out of the account they can do so. At the same

time they withdraw their money from the account, the Government its contribution too.

Only one parent per child is able to claim the vouchers and during the application process will be required to provide details of their partner’s income as well as their own. If parents are separated they will have to decide who is best suited to make the claim. If they are not able to decide for themselves then HMRC will decide for them.

Eligibility is not constrained by personal tax brackets.

This means that anyone on a salary of up to £150,000 can claim. Whether a couple earns £40,000 or £299,999 between them, they will be able to claim the same amount of support.

If in receipt of tax credits or in due course, Universal Credit, parents will not be able to use the vouchers. In the case of the latter, 85% of the costs of childcare will be met by the Government, provided both parents are working and earn more than the personal tax allowance, which will be £10,000 by 2015.

The programme supports working couples and each parent must be working at least 8 hours a week on the national minimum wage, earning a minimum of £605 per quarter. When making claims, the parent will have to say how much they expect to earn in that quarter. If only one of the parents is employed then the couple will not be eligible to apply. The only exception to this rule is if one of the parents is unemployed and in receipt of Carer’s Allowance or Employment and Support Allowance. For single parent families, the parent must be employed in order to be eligible for the programme. Self-employed parents can apply for the government programme.

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Tax-Free Childcare:

10 things parents should know Click here to read the Gov.uk summary on the subject

The employer-supported childcare voucher programme allows for a parent to apply even if the other is unemployed.

If an employee was eligible for the scheme before taking maternity or paternity leave or any other kind of paid parental leave, they will continue to be eligible whilst they are not working.

Is the new scheme better or worse than the employer option already in place? For some parents it will be better, for others it won’t. It is important that parents consider the best way for them to make savings before the switch in 2015.

The current voucher scheme, or Employer Supported Childcare scheme, allows parents to sacrifice part of their salary in exchange for childcare vouchers. In effect, this means they are paying for part of their childcare tax-free. The vouchers are worth up to £55 a

week, or £243 a month. The saving in tax and national insurance contributions adds up to £933 a year, and because both parents can claim, the total saving can be almost £2,000 a year.

Under the original plans for the new scheme all working couples with one child would have been worse off, but by raising the cap on costs from £6,000 to £10,000 the government has ensured that some parents can claim more.

It says a working couple with one child will be £134 a year better off if they spend the maximum £10,000, while a working couple with three children will be £5,375 better off. A single parent with two children can claim £3,067 more a year.

If you are a working couple with one child paying around £5,000 a year for childcare, you will be worse off under the new scheme, because you can only claim 20% of your costs, or £1,000 a year. If you have two children, and spend £5,000 on each you will be better off.

What will happen to RG Childcare? RG Childcare will continue to operate for all members already taking childcare vouchers. If you are a member and want to continue to use the scheme until your child reaches 15 you can – but only if you stay with the same employer. If you change employment you will not be able to have your employer supported childcare vouchers reinstated at your new employment.

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OLD vs

NEW

Employees can continue to sign up until the new scheme is introduced, but it will be phased out and the cash diverted to supporting the new Government programme.

Its really important that parents with older children heed the fact that eventually there will be no support for parents of children aged between 12 and 15, except where the child is disabled. Parents will not be able to claim vouchers under both systems at the same time, so they will have to make a choice as to what works best for them.

Even if for now, they only request £10 a month, it will designate them as participants in the programme and they can decide at a later date what works best for them at that time.

What difference this will make to employees if they decide to stay in this scheme or leave and go to the Government scheme? A basic rate tax payer is in receipt of £243 childcare vouchers per month.  What are the savings under the current childcare voucher scheme if they are sacrificing their salary and what are the differences between this and the new Government scheme in terms of savings?

Under the current employer supported programme a basic rate tax payer taking £243 of vouchers per month saves £933 annually. Under Tax-Free Childcare, eligible families will get 20% of their yearly childcare costs paid for by the Government. This could mean up to £2,000 per child (the scheme assumes a maximum of £10,000/year childcare costs per child). If they continue to take only £243 of vouchers via the new scheme they will save £583 annually.

The key factor for employers to remember is that this is the last year that businesses can optimise their National Insurance savings. Following the changes, existing schemes will not be able to add new members.

If you require any further information or support with the promotion of your RG Childcare programme, please contact your Account Manager today. !!!!

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