Tax free childcare - what's the experience of this

[albairlanda]

Hello, when I had my first two children it was all childcare vouchers through work. I am now realising that those are now not available and it's tax free childcare instead. I have read through some guidance about this but I am not exactly clear...

I'm hoping that people who use the scheme can give me some pointers.

We are looking at term time childcare. Will likely be a cost of about £320 a month. That's going to be about £3840 a year. This would have been practically all covered by childcare vouchers which we got through salary sacrifice of £243 a month. Does tax free childcare offer as much savings a month? I read somewhere it's worth about £2000 savings on childcare a year? Which would be great if we only had to pay £1840. I'm assuming that would come out of our gross tax the same way vouchers did? With vouchers you could start salary sacrificing even whilst still on Mat leave. Is that the case with tax free too?

Sorry for all the questions but hoping users or this service can help.

Thanks jn advance

You set up an account online. You pay money into it, by debit card or standing order. For every £8 you put in the government put £2 in, up to a total of £10000 a year (so £8k from you, £2k from government). You pay your childcare provider from the account. I find it really easy to use, but have heard other people complain about it. You both need to be working, earning more than the equivalent of 16 hours a week at minimum wage and both earning less than £100 k a year.

£2000 is the amount you get topped up by the government (the free money). Not the total you can put in.

So it will cost you £3072 per year, rest will be topped up.

It's super easy to use, much easier than the childcare vouchers! Can top up whenever you please

I used it for nursery and found it great. Pretty simple to set up and use and saves you 20%. You upload money to the account, 20% is added on and then you pay the provider from the account. You can withdraw money again if you want to (but the 20% is taken back off again). From memory you can only set it up towards the end of maternity leave. My understanding is the savings are similar to childcare vouchers but one may have had advantages over the other depending on circumstances. Martin Lewis had a good comparison of the schemes on his website although as the voucher scheme is now closed to new applicants I’m not sure if it’s still there.

You won’t save the full £2000 though - it’s a maximum of £2000 and you’d need to be paying fees of £10k to get that. On £3840 a year you’d save around £800 in total.

Lots of help here www.gov.uk/get-childcare

You'll be better off with TFC than vouchers looking at your figures.

OP, vouchers and tax free childcare are completely different. All the latter essentially means is that you pay 80% of your nursery bills and the gov pays 20% 1 but it's capped ar £2000 per year / term, I'm not sure. There is one account per child and not per parent. There's no salary sacrifice and you can only set up the account once your child is a month (?) away from starting nursery. Definitely not before they are born. That's it in a nutshell I think.

@motherland101

OP, vouchers and tax free childcare are completely different. All the latter essentially means is that you pay 80% of your nursery bills and the gov pays 20% 1 but it's capped ar £2000 per year / term, I'm not sure. There is one account per child and not per parent. There's no salary sacrifice and you can only set up the account once your child is a month (?) away from starting nursery. Definitely not before they are born. That's it in a nutshell I think.

Sorry, I meant the 20% the gov pays is capped at £2k per year. So it won't be £2k savings for everybody, only for the people paying min £10k a year. And this is not done through your employer, you pay the money into the gov account which then gets topped up straight away, and then from there you can pay the nursery in full. I know most nurseries do, but it's worth checking they definitely participate in the scheme and accept payment this way.

My understanding was that once you have started on childcare vouchers you can stay on them. Be VERY careful if you are on vouchers and you switch because you can’t switch back. We missed out on vouchers by one months payslip and they would have been way better for us. Search online for people who regret switching. For us the new system works, so long as we both work, and as a supply teacher it gets very tricky over summer where I have 8 weeks of no pay. Obviously most people don’t have this issue, but for stay-at-home parents, they aren’t entitled to the scheme as both parents must be working. Plus, if you are lucky enough to earn A LOT, you won’t be eligible. Just make sure you have your eyes wide open!
Having used the scheme on and off when I have been eligible, I have found it straightforward and easy to use, top up and pay for childcare.