Tax-Free Childcare & the impact on employers

Tax-Free Childcare is a new scheme that the Government are launching this year to provide more support for working parents to help cover childcare costs.

How will the new Tax-Free Childcare scheme work?

Parents will open up an online account and pay money in. The Government will then add £2 for every £8, up to a limit of £10,000 (equivalent to 20%).

For example, if a parent claims £10,000, he or she will pay £8,000 and receive £2,000 as a Government subsidy.

When will it launch?

The new scheme will launch on 28th April 2017, and be rolled out to all eligible parents by the end of this year. Parents with children under the age of two will be invited to join first.

How will the changes affect my existing Childcare Voucher scheme?

Parents will not be able to benefit from both schemes at the same time. However, the current Childcare Vouchers scheme (also known as ‘Employer Supported Childcare’) will remain open to new entrants until April 2018.

The eligibly rules around the new Tax-Free Childcare scheme are complex and many parents will be financially better off staying with Childcare Vouchers. Fortunately, any parent who joins the Childcare Vouchers scheme before April next year will be able to stay on it for as long as they need to, or until they change employer.

Who is eligible for Tax-Free Childcare?

  • Can be used for children up to 11 years old, or 16 if registered disabled
  • Both parents must be employed
  • Both parents must expect to earn at least £120 per week (equal to 16 hours at the National Minimum or Living Wage)
  • Neither parent must be earning over £100,000 per year
  • Parents must not be claiming Child Tax Credits, Universal Credit, or Childcare Vouchers
  • Self-employed parents can join

Who stands to benefit or lose out?

For working parents, deciding which scheme is best for them will differ based on their individual circumstances, but as a general guide:

Better off with Childcare Vouchers

  • Couples where one parent doesn’t work, or earns less than £120 per week
  • Parents with childcare costs for children aged between 12 to 15
  • Basic rate tax-payers with annual total childcare costs of £9,336 or less, or higher rate tax-payers with annual total childcare costs of £6,252 or less
  • Higher earners, where one parent is earning over £100,000 per year
  • Parents who claim Child Tax Credits or Universal Credit with Childcare Vouchers, where combined savings exceed those offered by Tax-Free Childcare

Better off with Tax-Free Childcare

  • The self-employed
  • Parents with a larger number of children and/or higher childcare costs
  • Basic rate tax-payers with annual total childcare costs above £9,336, or higher rate tax-payers with total annual childcare costs above £6,252

What should employers do now?

  • Stay informed. The finer details of the new Tax-Free Childcare scheme are only just emerging and still subject to change. Ensure you are signed up to our Tax-Free Childcare email updates for employers using the form opposite.
  • If you do not have a scheme set up yet:
    • You need to act now and get one in place as soon as possible
    • Your working parents are already missing out on significant savings (up to £933 per year, per parent) and your business is missing out on up to £402 in employer NIC savings per year for each parent on the scheme
    • Call Edenred on 0843 453 4406* to get one set up for free, in as little as 35 minutes
  • Be prepared. If you already offer a Childcare Voucher scheme, you need to be prepared for questions and an expectation from your working parents for guidance and support to navigate the changes. Many parents will be better off with Childcare Vouchers and will be turning to you to ensure that option is available to them in the longer term.

What should Childcare Voucher scheme members do now?

You should be advising your scheme members against make a hasty decision. There is no requirement to switch schemes just yet. The eligibility rules are complex and have not yet been confirmed. They could be ineligible, or worse off under Tax-Free Childcare, or their circumstances could change over the next 12 months.

The safest response in the meantime is to keep their options open by joining and/or staying on the Childcare Vouchers scheme, otherwise the choice will be taken away from them come April 2018.

Find out the reasons why organisations should launch an Employer Supported Childcare Voucher scheme with Edenred →

Find out more about about an Edenred Childcare Voucher scheme, enquire online here 

Or give us a call on 0333 2201 586

How can we help? 

Government announcement: time to act! 

red caseWorking parents don't need to wait until 2017 to save on the
cost of their childcare.

They could save up to £933 year through
an employer scheme before then.

Employers can save thousands too on NI contributions.

Act Now: Find out the reasons why you should launch an employer supported Childcare Voucher scheme and ensure you get the best deal for you and your employees.

Find out more

Got questions?  Call Us.

Employers speak directly to our friendly knowledgeable team on:  


0333 2201 586

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