Help with Childcare cost - ICOTAX

Childcare cost and help

Childcare vouchers have been a useful and well utilised tool for employers to support employees with their childcare costs.

You can get help paying for childcare if it’s provided by a:

  • registered childminder, playscheme, nursery or club
  • childminder with an Ofsted-registered childminding agency
  • registered school
  • home careworker working for a registered home care agency

This is known as ‘approved childcare’.

Employers supply their employees with childcare vouchers, the value of which is deducted from their salary (salary sacrifice), to use against their childcare costs. The advantage for the employees is that the value of the vouchers is deducted from their pay before tax and national insurance contributions are calculated. The employers save class 1 national insurance contributions on the voucher amount.

Employees can sacrifice up to a maximum of £55 per week of their wages to convert into vouchers, this may be less if you are a higher or additional rate taxpayer and joined the scheme after 5 April 2011. This amount is per parent so you can get up to £110 per week per couple. It is not affected by the number of children you have, so the limits are the same for one child or more than one child.

The Government closed the childcare voucher scheme to new applicants in October 2018. Employees who were members of the scheme prior to this date can continue to use the vouchers and benefit from the normal tax and national insurance benefit, whilst they are still with the same employer and do not take an unpaid career break in excess of 12 months.

The Government introduced a new scheme – tax free childcare (TFC) – in April 2017 to replace the voucher scheme. Parents have to set up an online account into which they pay contributions towards childcare costs and the government tops this up with an amount equal to basic tax of 20% up to the ceiling on the amount: £500 per quarter, £2,000 a year, £1,000 per quarter if the child is disabled.