The Government rolled out its latest initiative, i.e. Tax-free Childcare scheme, in late April to show greater support for working parents. This issue has been addressed repeatedly by different governments, so that keeping up has never been easy. To support parents, Governments have funded free nursery places for very young children, and have offered further support with government money in the form of tax incentives. Until 2017 this second-phase of financial support has been delivered through Childcare Vouchers – a very tax efficient way of paying for some childcare provision.
Tax-free Childcare is designed to save parents up to £2,000 per year, per child, for children up to the age of 12, but in reality the average saving has been estimated at just £800.
There were problems with the Childcare Voucher offering, not least that to qualify for this support the working parent(s) had to be offered the scheme via their employer. In our experience, most SMEs employers do not offer (or are completely unaware of) this option, and therefore many working households have missed out on this financial support.
Since 2005, employers have been able to provide parents with childcare vouchers as part of a salary-sacrifice scheme. These vouchers currently help around 780,000 working parents save up to £933 of tax and national insurance on their childcare costs per year. From April 2018, new entrants to the childcare vouchers scheme will not be permitted. Parents already in the scheme will, however, be able to remain in the scheme for as long as they require.
While some families will benefit from the roll-out of Tax-free Childcare, others risk being worse off, which means that employers need to be on top of these changes. Each case needs to be taken on an individual basis. Parents cannot use both childcare vouchers and Tax-free Childcare. If employees leave the childcare voucher scheme in favour of Tax-free Childcare, they will be unable to re-join, even if their circumstances change in the future. With the roll-out expected to include children up to 12 years old by the end of 2017, there may be quite an increase in enquiries from parents in the not too distant future.
Employers can choose to play a voluntary role, by providing employees with information on the scheme, and/or by paying into employees’ childcare accounts.
Employers are not obliged to play a role in the Tax-free Childcare scheme, as the scheme will operate directly between parents and the Government. This may sound like good news for employers, but childcare costs can also be a problem for employers. Enforced absence and financial hardship are issues that will distract even the best employees from their work. This can be bad for productivity, not to mention those who may be actively considering leaving the workplace.
Employers ought to learn about the details of both schemes and understand how they will impact different employees, so they can not only educate their staff and offer guidance on the decisions ahead, but also show their commitment to enhancing their employees’ lives, both in and out of work.
Employers can act as a source of information on the scheme, for example by referring employees to the Government web portal for advice. www.childcarechoices.gov.uk through which parents can sign up to receive email alerts that will tell them when they can apply for Tax-Free Childcare.
A useful time to provide this information may be prior to, and on return from periods of family-related leave. There are also some good websites, such as: Employers For Childcare who produced a guide. Their guide includes a comparison of Tax-Free Childcare with other forms of support, practical examples, and answers to FAQs.
Actions
Employers can show their support for working families (particularly as some employees will be worse off under the new scheme) by:
- Building a culture that clearly values each employee and their need for a family life
- Providing employee benefits that helps to keep more money in parents’ pockets e.g. by choosing to pay into a childcare account
- Having policies that help new parents return to work
- Pointing employees in the right direction to get guidance
It should be noted that BackupHR™ are not experts in childcare vouchers so on this occasion we are probably not the first point of call for queries on this matter which is why we have provided information links instead.
The guidance provided in this article is just that – guidance. Before taking any action make sure that you know what you are doing, or call us for specific advice.
