The future of childcare vouchers

In the recent Budget, the Government announced significant changes to childcare vouchers. Existing childcare voucher arrangements are due to be phased out from Autumn 2015, with a new childcare tax-break being introduced instead.

What does the change mean for parents?
The new scheme will allow parents to reclaim up to 20% of their childcare costs, up to a maximum of £1,200 a year per child for children up to age 5. Unlike the current scheme, the new arrangements will be open to the self-employed and to those on the National Minimum Wage. Over time the scheme will be extended to cover children up to age 12.
While the new scheme will offer increased savings to some parents, others would be better off under the current scheme. Some parents will be ineligible to join the new scheme, with the affected groups including additional-rate taxpayers, couples where one parent is out of work and parents of older children. Couples who have only one child in childcare will receive lower savings under the new arrangements, as will parents who have more modest childcare costs.
Parents who join the current childcare voucher scheme will be allowed to continue receiving childcare vouchers well beyond 2015, so there are still plenty of reasons to encourage parents to sign up for childcare vouchers.

What does the change mean for employers?
The Budget announcement transfers the onus of childcare support away from employers. Instead of relying on employers to set up a childcare voucher scheme, parents will be able to claim their tax relief direct from a childcare voucher provider of their choice. However, employers still have a vital role to play, both in continuing to offer childcare vouchers to pre-2015 members and in finding creative ways to support future parents.
For example, although the new tax relief will be available for parents to access direct, many parents appreciate the convenience of their childcare costs being deducted through payroll. With this in mind, we intend to offer employers a payroll deduction childcare scheme, which will be phased in as the current childcare voucher arrangements are phased out.
Unfortunately, the new scheme will not offer any National Insurance savings for either parents or employers. We know that employers greatly value their NI savings from childcare vouchers, so this change may lead to a hole in HR budgets. However, as the existing scheme will be phased out gradually, there will at least be time for employers to prepare.
The full details of the new scheme have not yet been agreed, but we remain in close contact with HMRC and will be addressing the remaining questions over the coming months.