New £1,200 childcare tax break vs existing voucher scheme – winners & losers

So what are the details and who will benefit most?

One of the major announcements in the Budget was the proposed change to the current childcare voucher scheme which will allow parents to claim tax relief up to £1,200 per annum per child.

What are the proposed changes to the childcare voucher scheme?

The new scheme will be more generous to larger families as they can claim up to £1,200 per annum per child under 5 years of age. The Government has said it will extend the scheme to children under 12 by 2020. Working parents (both parents need to be working) will be able to claim under the new voucher scheme, to subsidise nannies or childcare costs from 2015. Vouchers will also be available for the self employed who currently cannot claim childcare vouchers. Working parents earning up to £150,000 per annum each are eligible, but it is not clear yet whether National Insurance payments will be avoided as under the existing scheme.

Why are the changes being made?

The Government are trying to make childcare more affordable as many people are unable to work due to the prohibitive cost. The cost of childcare has increased by over 77% in real terms over the last decade and is now an average of £11,000 a year for a toddler at  nursery full-time, according to the charity Daycare Trust.

What happens if I already receive childcare vouchers?

When the new scheme starts in 2015 parents already claiming vouchers can continue to receive vouchers under the old scheme or switch to the new scheme.

Will I be better off under the new childcare voucher scheme?

Families with more children, and both parents working, will benefit as the maximum benefit is payable for each child, rather than one claim per parent. On the other hand families with both parents working and only one child could be worse off under the one claim per child rule. Figures from Sodexo, the voucher care provider, show that two working parents with two children under five would be around £1,200 a year better off under the new scheme. Self employed parents can now claim where they were excluded under the old scheme.

Will there be further details available?

As this idea is currently at proposal stage there is a lot more work to do regarding the detail as we move toward the 2015 commencement date.