Why you and your finance director need talk about changes to Childcare Vouchers


It’s a year since the Chancellor announced his plans for Tax-Free Childcare, a new scheme to support working parents with the costs of childcare in his 2014 budget.


Under the new rules, households where both parents are working will be able to get up to £2,000 for every £10,000 back per child on the cost of childcare.

According the original timelines, we should be little over six months away from their implementation.

Any employer who hasn’t planned for the impact of Tax-Free Childcare needs to start thinking about what it means for their business and their people now.

Of course, parents will bear the brunt of the changes. A substantial number will lose out under the new scheme because only one of them is working. Many lower earners which make up a substantial portion of the workforce will also be worse off.

But there is also a big potential impact for employers which HR and finance teams need to start planning for now. At the heart of this is the loss of the National Insurance Savings from every parent who is in a scheme.

For larger employers, with many employees signed up to the current Childcare Voucher scheme, a flight of parents to the new scheme is likely to add up to a substantial and unwelcome uplift in the NI bill. Smaller employers will feel the same impact, albeit on a smaller scale.  

A second problem facing employers in light of these changes is the fact that many organisations use the NI savings from Childcare Vouchers to reinvest in other employee benefits. The potential evaporation of this pool of money means employers need to think about how they might fund their benefits in the future.

The important thing to realise in all of this is that the arrival of Tax-Free Childcare doesn’t make all of this inevitable.

The first action employers can take is to ensure that all the parents who may benefit from the current Childcare Voucher scheme – either now or in the future – need to be signed up ahead of the autumn launch of Tax-Free Childcare. This will put them in charge of which scheme suits them best.

The second action employers can take is to explain the benefits of the existing scheme and continue to do so once Tax-Free Childcare is in place. This should mitigate against people coming out of the employer scheme in large numbers and safeguard NI savings for your business – and your employees – for longer.

A last check you should make is into the stability of your current Childcare Voucher provider. Both your employees and your business will need to have an arrangement with an organisation that is financially stable and committed to the market after the changes. Switching to us straightforward but you need to allow time to do it effectively.

All of these points should form part of a conversation between the HR team and the finance team. If you have started talking about the changes already, now is the time to act.