Proposed changes to tax-free childcare

Children in playgroup

The government tax-free childcare (TFC) scheme was introduced on 28 April 2017 and will eventually replace employer-supported childcare schemes (ESC). We have put together key information on TFC for employers including how this affects employees in any current ESC schemes you operate.

Key facts about TFC

  • TFC is administered through online accounts, opened by parents on the website. Parents pay money into the account, which is used to pay for childcare with registered providers.
  • Parents can pay money into their childcare account as and when they like, and other parties can also pay in.
  • For every £8 paid in, the government will add £2, up to a maximum of £2,000 government support per child, per year (£4,000 for children with disabilities).
  • The scheme is open to parents of children up to and including the age of 11 (16 for children with disabilities). This is lower than current ESC which is available for children up to 15 years of age.

The role of employers in TFC

There is no mandated role for employers under TFC, but you may choose to provide information to your employees.This will be a predominantly signposting role, directing employees to the childcare account website and where to register. Employers will not be required to verify identification or eligibility.

Parents can choose to remain in their existing ESC arrangement or move to TFC. This decision will depend on which option is best for the parents' individual circumstances. You may wish to direct your employees to the childcare calculator to help with making this decision.

Childcare vouchers can play a valuable part of an employer's total reward offering and are used for recruitment and retention purposes. As they are being phased out, you may need to review your flexible working offering and consider what else you could to support working parents and ensure your total reward offering is still family friendly. You may wish to consider introducing other family friendly benefits into your organisation and you will need to look at the cost implications of offering these. One option may be choosing to pay in to an employee's TFC account, either as an additional payment, or by facilitating payments from their salary. Remember though that any contribution towards TFC from an employee's salary must be from net earnings, i.e. after tax, to avoid them receiving a tax benefit twice.

Employer-supported childcare (ESC) 

Employers in the NHS can currently provide ESC through schemes such as childcare vouchers, workplace nurseries and directly contracted childcare. The government has announced that existing ESC schemes can now remain open to new entrants until October 2018. Parents can choose to remain in their existing ESC arrangement (as long as their employer continues to offer it) or move to TFC. This decision will depend on which option is best for the parents' individual circumstances.

Workplace nurseries

Employers providing workplace nurseries and directly contracted childcare can continue to do so, and employees will still be able to join a workplace nursery scheme offered by their employer. Given that more employees will be using TFC to pay for their childcare provider, this may impact how your workplace nursery is funded.

Childcare vouchers

Employers offering childcare vouchers through salary sacrifice arrangements can no longer accept new entrants to a scheme. Employees who registered for childcare vouchers through their employer before 4 October 2018 can continue to use the scheme as long as the employer continues to offer it and their child remains eligible. Employees are continuing members of a scheme provided they do not have more than 52 consecutive weeks without receiving childcare vouchers.

Where an individual joins a new employers after 3 October 2018, they will not be able to continue receiving childcare vouchers. This includes moving from one NHS organisation to another. An employee who chooses to take up tax-free childcare will lose entitlement to employer-supported childcare vouchers, but may be eligible for tax-free childcare.

Further information

You can find out more about tax-free childcare on the website and on the Childcare Choices government website.

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