Childcare vouchers vs tax free childcare

[spydie]

Hoping someone smarter than me, or that knows how these work can advise!

Currently one DC in full time, but term time only, childcare (annual cost about £8.5k), second baby on the way/start maternity leave in July. Plan to have first DC1 still attend CM whilst on mat leave, but on a pt basis, plus start pre school in September.

I'm a higher rate tax payer and am currently receiving cc vouchers. DH is a basic rate taxpayer and following change of employer no longer gets vouchers.

I think it works out better to switch to the tax free childcare system? Can we use this once second child arrives...? I'm sure I read something somewhere about using it only once the youngest child is in childcare?

I think under childcare vouchers you would save around £623 a year, as only you are getting those and you are a higher rate tax payer.

Under Tax-Free Childcare with two children, you could save up to £4,000 per year, IF your childcare cost is £20,000 per year.

Tax-Free Childcare is for children up to September following their 11th Birthday. Childcare vouchers is until age 16 but in your case this won't help determine which scheme is best as you max savings under childcare vouchers for 16 year period is £9,968 which you may achieve with Tax-Free Childcare within 2.5 years.

So I would look at what your childcare cost will be once you go back to work. Then you can calculate the annual savings you would get via Tax-Free Childcare.

I would also check that your salary is not close to the max salary... it may be no where near but if it is near... then look at if work does a salary sacrifice pension scheme so if you go over £100k salary you could increase pension contribution to make salary drop just below the £100k limit.

My understanding is that you can use TFC immediately for your eldest child and from birth of your baby. There is a three month period where there can be an overlap of vouchers if you need to use some up.

Tax-Free Childcare info from Gov.uk

Oh thankyou, that is hugely helpful