Childcare Voucher Scheme closing in favour of a Tax-Free Childcare (TFC) scheme.

Many parents can save £100’s a year using childcare vouchers, allowing them to pay for childcare from their PRE-TAX salary.  However, the scheme is being closed in favour of a Tax-Free Childcare (TFC) scheme.

You have until October 4 2018 to sign up for the current Childcare Voucher scheme however no new employees will be able to opt in. People that set up and have a deduction in September can continue to take the benefit for a further 12 months, however a deduction (of at least £1) MUST be taken from September’s salary to qualify.

The scheme works by ‘salary sacrifice’. For example, if you are on a basic-rate tax you could “give up” £1000 of salary. In real terms, after tax and NI £1000 of salary amounts to only about £700 of cash in your pocket. However, by “giving up” this portion of your salary you are given £1000 of childcare vouchers, in return, so in actuality you are £300 better off.

Basic-rate taxpayers can buy £55 of childcare vouchers a week (approximately £243 per month). This is PER PARENT, meaning that two working parents could get £110 of vouchers a week (£486 per month).

If you are a higher or top-rate taxpayer and you joined a childcare vouchers scheme before 5 April 2011, you will also be able to buy this amount, though if you joined after, you’ll be able to buy a lower value of vouchers. This is to even out the maximum tax saving that can be made. The limits in terms of vouchers you can buy are:

  • Basic-rate (20%) taxpayer: £55/week voucher, max annual tax/NI saving £933
  • Higher-rate (40%) taxpayer: £28/week voucher, max annual tax/NI saving £625
  • Top-rate (45%) taxpayer: £25/week voucher, max annual tax/NI saving £623

The number of children you have doesn’t affect this, so the limits are the same whether you have one child or an entire Brady Bunch. This means if you can’t meet your entire childcare cost using the vouchers, you will have to pay the nursery, school or childminder directly for the rest.

The scheme is closing because the Government has rolled out the Tax-Free Childcare (TFC) scheme to replace it. More details of the new scheme can be found  here.

Unfortunately, you cannot have vouchers as well as signing up to the new Tax-Free Childcare. So which is best? The image above image, courtesy of demonstrates a good comparison.

If you have any questions or would like some advice please contact the Payroll team at