Childcare vouchers explained

Child playing outside at nurseryFrom autumn 2015, the government is proposing an online tax-free voucher system to help parents pay for childcare. Here, we explain how the new scheme will work and whom it will affect. 

How do the existing childcare vouchers work?

Essentially, they're a salary sacrifice that saves you money because they're paid for out of your pre-tax and NI income.

Childcare vouchers are only available via employers and you can only claim for children aged up to 15. You and your partner (if you have one) can claim individually.

Employers choose whether to opt into the scheme. Less than 10% do so.

Parents using the existing scheme can choose to stay with it or switch to the government's proposed new scheme, but once the new scheme begins no one else will be able to join the current scheme.

How will the new childcare voucher system work?

Parents will have to open an online account with a voucher provider.

The government will then top up each parent's account with a 20% contribution up to a maximum of £1,200. So, for every £100 paid for childcare, parents will pay £80 and the government will pay £20.

Mumsnet research from 2012 shows that the average monthly spend on childcare is £582 which, even allowing for a month of holidays, comes to well over £6,000 a year.

New childcare voucher scheme at a glance

• Salary sacrifice scheme
• Parents open online voucher account with a voucher company
• This is topped up by the government
• Parents use the vouchers to pay for childcare from Oftsted-regulated carer

Where can the vouchers be used?

At any Ofsted-regulated childcare in England, and the equivalents in Wales, Scotland and NI.

Who is eligible?

Any household where both parents work 16 hours a week or more.

Single parents must be working to receive the vouchers

What ages of children will the new voucher scheme cover?

Initially, it will cover children under five. The government says this will rise over time to cover children up to 12.

Income threshold?

The government says this will be up to £150,000 a year. So two working parents could earn up to £300,000 and still receive vouchers.

The government consultation on the new proposals closes on 14 October 2013.

Tell the government what you think 

What about low-income families?

Families on low incomes won't be eligible if they're on tax credits. But if you get tax credits and you and your partner work at least 16 hours a week, you can get up to 70% of childcare costs paid by the government.

How many people will it affect?

The government says up to 2.5 million families. The current voucher scheme affects far fewer families because employers choose whether or not to opt in to the scheme.

What about stay-at-home parents?

The government says it will extend the new scheme to stay-at-home parents who spend at least 35 hours a week caring for a disabled relative. But it won't be extended to parents who stay at home to look after their children, which chancellor George Osborne says is a "lifestyle choice"

What about parents on universal credit?

Parents who claim universal credit will be covered by a separate scheme. It will cover up to 85% of their childcare costs.

So what's the point of the new scheme?

The government says it will make it financially worthwhile for parents to get work or stay in work. Not everyone agrees: read Mumsnetters' concerns about the new scheme.

And it's unclear what will happen in certain scenarios - for example, if someone isn't working because they're doing professional training and need childcare in order to do so.

This page was published on 7 August 2013

Image: Shutterstock

Last updated: 07-Aug-2013 at 11:25 AM