Employer provided childcare vouchers can only be provided to employees, so the self- employed can’t take advantage of the tax and NIC savings they bring. This is partly why the Government set up tax-free childcare (TFC) accounts, which are available to most working parents.
However, there are a number of other differences between the eligibility for childcare vouchers and TFC accounts, which may mean it is more advantageous for parents to take the vouchers. It is not possible to use both schemes. The parent should notify their employer within three months of opening a TFC account so the employer can exclude them from employer-supported childcare schemes.
Childcare vouchers can be provided to employees irrespective of their income, but a TFC account can only be opened if the individual is earning at least £125.28 a week (NMW x 16 hours) and neither parent has income of over £100,000 per year. The childcare vouchers can be used to pay for the care of a child aged up to school leaving age, but the savings from a TFC account can only be used for to pay for care of a child who is aged 11 or younger.
If the parent is not already in receipt of childcare vouchers they need to join a childcare voucher scheme before 4 October 2018, and receive their first voucher by their last payday before that date.
The value of the childcare vouchers which are tax and NI free depends on the income tax band the employee falls into. The annual value of tax and NI free childcare vouchers which can be paid these taxpayers are:
- Basic rate taxpayer: £2860
- Higher rate taxpayer: £1456
- Additional rate taxpayer: £1300
The TFC accounts are topped up by the government by £20 for every £80 deposited by the taxpayer, up to a limit of £2000 per year per child, or £4000 per year for each disabled child.
