How will the changes to childcare vouchers affect staff?

The Childcare Payments Bill, announced in the 2013 Budget, will see the current childcare voucher system replaced with tax-free childcare.


If you read nothing else, read this…

  • From autumn 2015, working parents will be able to sign up to the childcare scheme, which offers 20% of the cost paid by the government.
  • If they are already in a  voucher scheme, employees are able to continue using it for as long as their employer chooses to offer it.

Childcare vouchers are a perennial favourite among employers and staff, and the most common tax-efficient benefit since 2009 to 2014, according to Employee BenefitsBenefits research 2014, which surveyed 256 employers, and was published in May 2014. But the changes arriving in the autumn will take effect on working parents.

From the autumn, employers will no longer be responsible for providing childcare vouchers, because the tax-free benefit will come from the government. Existing childcare voucher scheme members will be able to continue using their employer’s scheme as long as they remain with the same employer, until their child reaches the age of 15.

Under the new scheme, working parents will have access to 20% tax-free childcare, which means that they pay for only 80%, up to a maximum of £10,000 per child. So for every 80p a working family pays in, the government will pay in 20p. Initially, a 20% tax break was expected on the first £6,000 of costs, which would have provided savings of up to £1,200 per child, but now the scheme will apply to annual costs up to £10,000, providing savings of up to £2,000 per child.

The new scheme is likely to be particularly welcomed by couples with two or more children, because the savings are calculated per child.

To qualify, an employee must earn over an average of £50 a week, but not more than £150,000 per year. Employees on paid sick leave, or paid and unpaid maternity, paternity and adoption leave, will also be eligible.

Employers’ workplace nurseries will not be affected.

Employee choice

Once the scheme comes into effect, current employer-provided schemes will continue for employees in a scheme for as long as their employer offers it. Those employees do not have to switch to the tax-free childcare scheme, but after autumn 2015 no new members will be able to register for childcare vouchers.

This suggests that many employers are likely to continue providing their current childcare voucher scheme post autumn. Rachel Farr, professional support lawyer at law firm Taylor Wessing, says: “For working parents already part of a scheme, it may be best to stay with that scheme to keep their options open. As childcare is an expected benefit, and highlights diversity and equality inside an organisation, most employers will continue to offer [vouchers].”

According to research by Jelf Employee Benefits published in August 2014, 82% of employers will continue to do so.

Communication in advance

Working parents who have not taken up childcare vouchers before the autumn, therefore, should be made aware of the changes well in advance. Where employees take up the new government scheme, the onus will be on the employee to set up an online account, into which the government will pay its 20%.

Laura Czapiewski, product manager for childcare vouchers at employee benefits provider Edenred, says: “Staff need to know that come autumn, they can only take part in one scheme, so they must decide on one in good time. Employers also need to inform staff about the change, and encourage them to join a scheme as soon as possible.”

This means employers must ensure they are up to speed with the changes to keep their workforces informed. Elliott Silk, head of employee benefits at Sanlam Wealth Planning, says: “The lack of communication to employees is going to be the biggest hindrance, because if employers aren’t even aware of the changes, it will be difficult to make staff aware.

“Employees need to do their research and work out whether the government’s new scheme, or childcare offerings their employer has, are the best value well for them.”

Employers, therefore, need to do as much as they can as soon as possible to ensure staff have all the information, says Jo Dalby, finance director at Busy Bees Benefits. ”I am encouraging employers to get a scheme in place pre-autumn and to advertise it well, with emails, posters and desk drops.

“Staff need to look at their income and childcare costs, as well as the ages of their children.”

Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD), adds: “Most employees will be better off; however some will not, including parents who pay the basic rate of tax [20%] and who spend less than £7,321.60 a year on childcare; two-parent families where only one [parent] works, [and] those with children over 12.”

Calculate the savings

The government’s arrangement will not provide national insurance (NI) savings for employees or employers, which could result in a significant loss for some employers. In turn, this could impact the amount they have available to invest in other employee benefits. This may mean they look to other tax-efficient benefits offered via salary sacrifice in order to make up the lost NI savings from childcare vouchers. Dalby explains: “Some employers will continue offering childcare vouchers post autumn, or even replace them with salary sacrifice perks.”

Positive change

Whether the Childcare Payments Bill is a positive change remains to be seen, but it is clear it will affect working parents differently. It could even boost wealthy parents’ finances because of the way it tops up families’ spend, according to Anand Shulka, chief executive of the Family and Childcare Trust.

Yet Farr says: “The new voucher scheme will open up childcare to a wider set of employees, which can only be a positive thing.”

Employers should therefore take the differing needs of their workforce into consideration when communicating and offering support.

Mandy Garner, editor of parenting website NetMums, says: “There will be winners and losers when the new scheme comes into force; it is dependent on whether both parents work, or are currently part of a childcare scheme.

“Staff need to know about how the changes will affect them. There is online help available, or employers should be answering employee’s queries.”

While it is clear that the changes to childcare will affect working parents in various ways, there is no way to foretell what will happen come autumn. Clear communication from employers, however, is undoubtedly required to help staff understand their options as soon as possible. As Czapiewski says: “There is no one-size-fits-all approach to the changes, so staff need to get their individual questions answered, which requires a joint effort from employer, provider and employee.”


 Lloyds Banking Group invests in employees’ parental responsibilities 


Lloyds Banking Group understands the importance of supporting working parents with family-focused benefits and flexibility.

An internal engagement survey carried out in September 2014, illustrated that 41% of Lloyds’ 88,000 staff have parental or caring responsibilities, so it offers staff benefits that will support their work-life balance.

Lloyds offers childcare vouchers to all staff as part of its flexible benefits scheme. In addition, it also offers the opportunity to take up flexible-working arrangements.

The bank has communicated to staff about the new tax-free childcare scheme that comes into effect in autumn.

Fiona Cannon, group director of diversity and inclusion at Lloyds Banking Group, says: “There are lots of different scenarios based on a couple’s circumstances, and the different choices available, so clear communication and guidance is key.”

In February 2015, the bank announced that it would introduce enhanced shared parental leave for all eligible UK employees. The policy will offer enhanced pay compared with the statutory minimum, and is aimed at ensuring families make the most effective choices for them around how they care for their child during the first 12 months after birth or adoption. 

“The way we live now is very different to even 10 years ago, and Lloyds is committed to supporting all our working parents,” says Cannon. “Childcare remains a cornerstone of the support we offer. Our childcare policy invests in our employees, and supports our desire to building the best team possible.”

In terms of the changes arriving in the autumn, Cannon says: ”Our colleagues will have the choice of remaining in our childcare voucher scheme or to sign up directly with National Savings and Investments for the new scheme.”