Tax-Free Childcare Update

Since this article was published, the government have announced Tax-Free Childcare will be launched in early 2017.

Last week the Queen announced the laws the Government hope to pass before May 2015. This included the new Tax-Free Childcare scheme.

On the 28th May the Government initiated further consultation on the launch of Tax-Free childcare. The consultation will remain open until the 27th June. Building on the previous consultation, the Government is now reviewing the options to deliver Tax-Free Childcare via the public sector, through National Savings and Investments (NS&I), using its existing banking infrastructure and service capabilities, or within HMRC.

The options to deliver the accounts via the public sector will be assessed using the same criteria applied to the private sector: simplicity, efficiency, competitiveness, security and responsiveness.

The aim of the consultation is to consider the pros and cons of administering the scheme via the public sector, compared to a private sector solution. It’s been suggested that the existing online portal, GOV.UK, could be developed to enable parents to register, manage accounts, receive the Government’s 20% top up and direct payments to qualifying childcare providers within the online service. Currently NS&I has an ‘account’ type service, however HMRC does not and would need to implement one if the decision is for HMRC to administer the new scheme in-house.

The Government would appear to welcome employers having a voluntary role in helping parents to access the new scheme. Under the current childcare scheme, employers can offer childcare vouchers as an employee benefit and promote themselves as being a ‘family friendly’ employer. With the new Tax-Free Childcare scheme, employers not only lose the National Insurance savings they made under the current childcare voucher scheme, they also lose the softer benefit of offering an extremely popular employee benefit.

A private sector solution, delivered for example through existing benefits providers, would give employers greater scope for being involved in the new scheme. While employer involvement in administration is expected to be non-existent or minimal, employers could be able to enjoy softer benefits, such as employee engagement and retention, by promoting the scheme alongside any other family-friendly services. Employers often find it valuable to be aware of employees who have family responsibilities in order to enable planning and targeted support. This information flow would only be available via a private sector solution.

One of the options being considered is an open-market model, with appropriate regulation in place. Under this model, benefit providers and other private sector firms would compete to offer Tax-Free Childcare to parents. There is scope under this model for employers to be incentivised by providers to promote a particular brand to employees, on a voluntary basis. This may help employers balance the books as the loss of their current National Insurance savings leaves a hole in benefits budgets.

As an employer it is important that you are heard. By re-opening the consultation, employers now have until the 27th June to have your say.

For a copy of the consultation and contact details:

KiddiVouchers continues to support clients through the changes and is actively encouraging employers to offer the current childcare voucher scheme, to enable their employees to be in a position of choice in 2015.