Conservatives are in and so is Tax-free Childcare
The votes have been counted and the Conservative party have won a majority in the 2015 General Election. This has been one of the closest and most unpredictable elections in decades. Many topics have been at the centre of this election campaign including the NHS, the economy, housing and childcare. Childcare costs have considerably risen over recent years, becoming an ever-increasing burden for working parents. High childcare costs can deter parents from returning to work and all parties have cited childcare costs as the main barrier to increasing female employment.
The Conservative party’s childcare policies are to increase the free childcare entitlement for three and four year olds to 30 hours a week and to introduce Tax-free Childcare. The Tax-free Childcare scheme in the autumn will provide parents with savings of up to £2,000 per child, each year. This new scheme will see the closure of the current Childcare Voucher scheme, which enables each parent to save up to £933 per year, to new entrants after the autumn.
Looking at the savings available, Tax-free Childcare seems to be the obvious scheme for parents to use to maximise on childcare savings. However, with Tax-free Childcare, the Government will be subsidising 20% of a child’s childcare, on costs of up to £10,000 per year. Therefore, to get maximum savings, parents must spend £8,000 per child, each year. To get the maximum savings using Childcare Vouchers, parents are only required to spend £2,916 each year. Both parents can use Childcare Vouchers; therefore savings could double to more than £1,800 at an outlay of only £5,832 per family to get maximum savings.
Your family’s circumstances will determine which scheme is best for you. To use Tax-free Childcare, both parents have to be working, whereas with Childcare Vouchers, only one parent needs to be working to access the scheme. Therefore, if your household has only one parent working, Childcare Vouchers are always the best option for your family.
Childcare Voucher provider, Busy Bees Benefits, have been offering parents individual assessments of their circumstances to help them decide which scheme will be financially better for their families. From these, Busy Bees Benefits have found that at least 80% of parents will be better off continuing to use Childcare Vouchers after Tax-free Childcare is launched in the autumn.
Parents were asked to supply their child’s details including their age and childcare costs, as well as parents’ earnings. From the information provided, Busy Bees Benefits were able to calculate whether they would be financially better off using Childcare Vouchers or Tax-free Childcare. John Woodward, Busy Bees Benefits CEO said “we knew a lot of parents would be better off using Childcare Vouchers, however we were surprised at the figures we calculated. Childcare Vouchers already help over 500,000 working parents, it is now time for employers to increase their responsibility to employees by promoting their Childcare Voucher schemes to ensure all eligible parents can join the scheme and benefit from the savings before it’s too late.”
After Tax-free Childcare is introduced, the existing Childcare Voucher scheme will be closed to new entrants, which means that parents wanting more affordable childcare will only be able to use Tax-free Childcare to make savings.
Parents who will be better off using Childcare Vouchers include those falling into the following categories:
- Middle-low earning parents if not eligible for Working Families Tax Credit
- Basic Rate tax payers spending less than £9,336 on childcare each year
- Families with only one working parent
- Families with low childcare costs e.g. only using a few hours per week and before and after school clubs
- Families using Childcare Vouchers for extra curriculum activities through an Ofsted or Independent School provider
- Families using childcare for children over the age of 12
- Families who want to start saving towards childcare costs as soon as their baby is born
- Family run businesses where savings can be made on PAYE, Employers and Employee National Insurance and Corporation Tax
- Families where one parent earns above £50,000, can use salary sacrifice to reduce their salary, which could enable them to receive more child benefit
Are Childcare Vouchers better for you?
You will need to join a Childcare Voucher scheme now to retain your right to choose and to ensure you do not lose out in the future, making one deduction from your salary from now until August to guarantee access to Childcare Vouchers. Once on a scheme, you can start accumulating Childcare Vouchers now for as little as £10 per month, even if they aren’t needed until a future date.
If your employer doesn’t offer a Childcare Voucher scheme, you can contact Busy Bees Benefits who will get in touch with your employer to set up a scheme. For more information about Childcare Vouchers and the savings they provide, please visit www.busybeesbenefits.com.