Changes to childcare vouchers – what it means for contractors

The date is set. From 6^th April 2018, the childcare voucher scheme will close to new applicants.   Those already in the scheme can continue to use it.

This week’s article delves into the change and discusses what it means for contractors.

Childcare vouchers

If you are a member of an employer scheme and expect to receive your first voucher before 5^th April 2018 you can continue to use the scheme. As long as you stay with the same company and it continues to run the scheme, or you don’t take an unpaid career break that is longer than one year.

From 6^th April 2018, the current childcare voucher scheme will not be accepting new applications. From this date, any contractors looking for assistance with childcare costs will have to join the new Tax Free Childcare scheme.

How Tax Free Childcare Works

The Tax Free Childcare scheme is already up and running. It started on 21^st April 2017. For families that are eligible to join the scheme, they will receive 20% of their annual childcare costs paid for by the government. You will be instructed to open a New Childcare Account into which you will pay your childcare costs for your chosen OFSTED registered provider.

For every 80p you pay the government will contribute 20p. The government assumes that the maximum childcare cost per child per annum is £10,000, which means you could have £2,000 paid for you. Childcare costs above £10,000 will not be covered.

Who is eligible for the Tax Free Childcare scheme?

The scheme is open to all eligible families unlike, the childcare voucher scheme which can only be used by people whose employer operates the scheme.

To qualify for the scheme, you must:

• Have one or more child aged under 12 or 17 if the child is disabled.
• Work at least 16 hours a week, earning a minimum of £155 per week (this means both if you are a couple).
• Earn £100,000 or less per annum. If you are a couple this applies to both of you. So, if one of you earns more than £100,000, as a couple you won’t be eligible.
• Not be claiming any tax credits.

What it means for contractors

Well, it could be good news for contractors. As a contractor working through a limited company, to qualify for childcare vouchers, you would first need to set up an Employer Scheme. This would be an extra burden on top of the other admin tasks that come with running with a limited company but there are companies out there that manage this for you for a small admin fee.

Working through a limited company and using the childcare voucher scheme, you would have to wait until the end of your accounting period to benefit from the tax relief. Under the new scheme, you can benefit from the government’s contribution straight away.

For parents who have recently become self-employed, the government is introducing a ‘start-up’ period, during which a self-employed parent won’t have to meet the minimum income level (currently £155 per week).

Another benefit of the Tax Free Childcare scheme is that other people can pay into the scheme, which can help with your cashflow. Plus, you can take any money you’ve paid in, back out of the scheme. However, a note of caution is needed, if you do this you will lose the contributions the government has put in.

Download our free ‘guide to contracting’ for more advice relating the contracting matters.

For further information on the new Tax Free Childcare scheme and how this will affect you as a contractor, please speak to one of our team on 01962 867550.