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At present employers choosing to do so can make available to their employees the Childcare Voucher Scheme (also known as Employer Supported Childcare). Put simply, those employers provide childcare vouchers to eligible working parents of children up to age 15 (or 16 if disabled) which are then spent with regulated childcare providers, directly contracted childcare or a workplace nursery. The employer administers the payments in the form of “salary sacrifice”. This exempts the employee from income tax and national insurance on the value of the childcare made available up to certain limits, e.g. £55.00 per week for a basic rate tax payer.

From an employer’s perspective the arrangement has the advantage that the employer saves either Class 1 or Class 1A national insurance contributions depending on whether the employer provides childcare vouchers or directly contracted childcare.

The Westminster Government is introducing a new arrangement known as the Tax-Free Childcare Scheme. It will gradually be rolled out between April 2017 and April 2018 starting with the youngest children and disabled children. After the April 2018 cut-off date parents will no longer be able to join the Childcare Voucher Scheme but the Childcare Voucher Scheme can continue for those parents who already belong to it so long as their employer runs the scheme and their child is not older than age 15.

Unlike the Childcare Voucher Scheme there will be no role for employers in the Tax-Free Childcare Scheme. This means that in respect of any working parents taking up the Tax-Free Childcare Scheme an employer will no longer benefit from lower national insurance contributions.

The Tax-Free Childcare Scheme will be more restrictive than the present Childcare Voucher Scheme. For example, it is only available where both parents or a single parent work at least 16 hours a week, neither earns over £100,000 a year or receives support through tax credits and except in the case of disability, is limited to children up to 12 years old (or age 16 if the child is disabled). Moreover, there will be a cap towards the cost of tax free childcare per year of £2,000 per child. Where an employer offers a Childcare Voucher Scheme, those limitations may encourage more working parents to join the scheme before the cut-off date.