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First time applicants for the employer-supported Childcare Voucher scheme are being warned by money expert Martin Lewis that they could lose thousands of pounds if they don’t apply by the deadline date of 5 April 2018.
If parents aren’t members of the childcare voucher scheme by this date, they won’t be able to join afterwards. This means parents have very little time to sign up for the scheme, as they will need to have already made the salary sacrifice and received vouchers to qualify going forward.
The scheme is being phased out in favour of the new Tax-Free Childcare Scheme which was brought out in April last year. Mr Lewis’ message to parents wanting to use the outgoing Childcare Voucher scheme, is to sign up as soon as possible, or lose out.
The money saving expert explained: “Two schemes give up to £100s or £1,000s of free cash to parents who pay for childcare. But one, Childcare Vouchers, is closing to new sign-ups imminently. Every parent who pays for childcare needs to urgently check if this would be best for them, and if so, sign up.
“The two systems currently in place to help working parents who pay for childcare. These are the Government’s Tax-Free Childcare scheme, and the soon to be phased out employer supported Childcare Vouchers scheme.”
The new Tax-Free Childcare scheme, which parents can access via the Childcare Choices website, means that the Government will pay back 20p for every £1 they paid in childcare. There is an £8,000 per child cap, but it does mean that £2,000 can be cribbed back.
It is estimated that up to 57 per cent of UK parents could be financially worse off using this Government scheme, compared to the employer-supported Childcare Vouchers, according to research by Sodexo Engage. Their study sampled some 17,165 UK parents.
The Childcare Voucher scheme is essentially a salary sacrifice scheme whereby an employee agrees to have their salary reduced in exchange for their employer giving them the same amount back in childcare vouchers.
Not all employers opt into the scheme though, and it doesn’t apply to the self-employed.
According to Mr Lewis there are some crucial benefits for parents using Childcare Vouchers, mainly involving a person’s NI and Tax payments. He explains: “The key is that there’s no tax or national insurance on the vouchers.
“So, let’s say you give up £1,000 of salary, after tax and NI, for a basic-rate taxpayer, that’s worth only £700ish in your pocket. In return, you get £1,000 of vouchers to pay for childcare, so you’re £300 better off.”
The savvy financial reporter advises that working parents first check whether or not they are entitled to benefits (otherwise known as Childcare Tax Credits) before paying for the cost of childcare. If they don't qualify, they can then look at the two options available to help them meet their costs.
To make a choice to see which scheme is best for you, visit Sodexo Engage’s Childcare Voucher Calculator