New Childcare vouchers to save all working parents money in 2015 – for better or for worse?

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With childcare costs being higher than ever it’s no wonder many parents are opting to stay at home rather than work because childcare is so high, they’d be left with no money at the end of the month. Worse still is the harsh reality that many parents simply can’t afford to go to work because childcare costs means they’re left with a deficit at the end of the month.

In 1989, the first childcare voucher scheme was introduced by the UK Government. Essentially childcare vouchers were provided by the employer or through an independent scheme provider to allow parents to purchase the childcare vouchers via salary sacrifice – in other words the money is taken for the childcare vouchers from your salary before you are taxed.

The downside for employees or the self employed is that employers do not have to offer a childcare vouchers scheme – so not everyone has been able to make use of this great benefit.

Until now…

The great news is that the Government has announced that from 2015 working parents will be able to buy childcare vouchers online regardless of whether they are self employed or employed by a company that does not offer a childcare scheme. This means that for every 80p you spend on childcare vouchers the Government will pay another 20p. The scheme will be available for up to £10,000 worth of childcare costs per child per year with absolutely no limits for how many children you can claim for. This scheme is available for all children up to the September following your child’s 11th birthday. Put simply, parents will pay £8,000 and get £10,000 worth of childcare from all Ofsted registered childcare providers. The £10,000 limit has also been increased from the current limit of £6,000.

The Guardian Newspaper today, reported that the childcare vouchers will be held in an online account run by National Savings and Investments and your entitlement will be assessed on a quarterly basis. So even if you have a change of personal circumstance, your childcare vouchers won’t be effected within each 3 month period. According to the government “The quarterly reconfirmation process will mean that payments to ineligible parents will be significantly reduced, diminishing the need for parents to subsequently pay back money.”

Once you’ve paid money into the scheme it is possible to get that money back and if your circumstances change and you no longer qualify for the account, you can also keep using the money in it, including any you claimed from the government, for up to two years afterwards – what a bonus!

Is everyone entitled to the childcare vouchers?

At the bottom end of the scale the government will offer the scheme to anyone working at least eight hours a week on the minimum wage, or earning around £50, or just over £605 a quarter (£2,5000 per year) through to earning up to £150,000 per year will be entitled to buy the childcare vouchers. As both parents can buy into the scheme, at the top end of the scale the government will be subsidising childcare for couples earning up to £299,999 between them. Whilst this may seem a bitter pill to swallow for low-income families – take comfort in the fact that you are still benefiting from the scheme. You’ll still keep your entitlement if you are on maternity leave as long as you qualified for the scheme before taking your maternity leave.

Parents claiming tax credits will be unable to use the childcare voucher scheme because instead, they will have 85% of their childcare costs funded by the government as long as both parents are working and earning more than the £10,000 personal tax allowance in 2015.

Although the vouchers are only available for childcare up until the September after a child’s 11th Birthday, parents of disabled children benefit from being able to claim up until they are 16 years old. Just a word to the wise – initially the vouchers will only be available for children up to the age of 5 but the upper age limit will be phased in over the course of the first year. Compare this to the current scheme whereby you can claim vouchers up until your child is 15. If you are already on the existing scheme you can opt to continue with it whilst you are with the same employer.

Another change to the current scheme is that both parents must be earning. I understand the need to incentivise people to get jobs but disappointingly, you will miss out if only one parent works (unless they are receiving Carers allowance or Employment and Support allowance). In single-parent families the single parent must be earning.

Some parents will be worse off.

The current voucher scheme means parents can sacrifice part of their salary in exchange for childcare vouchers. The vouchers are worth up to £55 a week, or £243 a month. The saving adds up to £933 a year, and because both parents can claim, the total savings in tax and national insurance contributions can be almost £2,000 a year. By increasing the limit from £6,000 to £10,000 the government has ensured that some parents can claim more. the government says that a working couple with one child will be £134 a year better off if they spend the maximum £10,000, while a working couple with three children will be £5,375 better off. A single parent with two children can claim £3,067 more a year.

If you are a working couple with one child paying around £5,000 a year for childcare, you will be worse off under the new scheme, because you can only claim 20% of your costs, or £1,000 a year. If you have two children, and spend £5,000 on each you will be better off.

So it’s worth considering whether it is more cost effective for you to opt into the current scheme now (assuming your employer offers it) and benefit from the childcare vouchers until your child is 15 or whether you’d rather wait until the new scheme is introduced – you can switch over in 2015 so make the most of this benefit to help with your childcare costs.

So my questions to you are this. Does the new scheme incentivise and support your return to work? How will it impact your family, if at all? Should the Government be finding ways to support stay at home mums? Are you a stay at home mum who feels pressured to get a job?

I am simply reporting information and I cannot offer any advice or guidance on this matter. For more information please see

http://www.hmrc.gov.uk/childcare/

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