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Childcare Vouchers versus Tax-free Childcare Scheme

publication date: Jan 14, 2015

Soaring childcare costs mean that some families are paying more than a quarter of their average weekly earnings. For some going back to work after having a child is simply not an option. Busy Bees who run a Childcare Voucher Scheme explain how the government's new Tax-Free Childcare System differs and who will benefit most.

The current government is introducing a Tax-free Childcare system this autumn. This system will see the government subsidising 20 per cent of a child's childcare fees on costs of up to £10,000, providing savings of up to £2,000 per child, each year. However, there is an existing Government-backed scheme which will be more beneficial for many families.

Childcare Vouchers are a long-established employee benefit available to help make childcare more affordable for working parents. Used by more than 500,000 parents in the UK, Childcare Vouchers are a key tool to help parents back into work after having children as they provide savings of up to £933 per parent, each year. Childcare Vouchers are operated through a salary sacrifice scheme, where a portion of the employee’s salary is deducted in exchange for childcare vouchers. The savings are created because the sacrificed amount is non-taxable and exempt from National Insurance contributions.

Tax-free Childcare will only be available to households where both parents work or for single working parents, which means, there will be many families who either won't be eligible to use the scheme or those who would be financially better off using Childcare Vouchers. This table below illustrates the households who will be better off on Childcare Vouchers rather than the Tax-free scheme.

Busy Bees childcare costs graphic

For more information about Childcare Vouchers and the savings they provide, please visit Busy Bees Benefits.