Surprise extension of childcare voucher scheme

Political pressure has seen the government backtrack on plans to abolish the salary sacrifice employer childcare voucher (CCV) scheme following the introduction of its new tax-free childcare option, and the vouchers will now be available for an additional six months, which some commentators suggest will cause confusion.

The tax-free childcare scheme was intended to replace the existing employer-backed system of providing parents with childcare vouchers as part of a salary sacrifice scheme. This scheme was used by around 450,000 parents and was worth up to £55 per week in lieu of salary, helping parents save up to £933 in tax and national insurance on their childcare costs per year.

Tax-free childcare offers parents, including those self-employed, up to £2,000 per year per child in top-ups to parental contributions via an online scheme.

Originally HMRC said new entrants to employer CCV schemes would not be permitted from April. Parents already in these schemes would be able to remain in them for as long as they required.

Now, in answer to a question in Parliament education secretary Damian Hinds has agreed to delay the closure of the old scheme for a period of at least six months, during which time it will still accept new entrants.

Forty-five MPs across all parties signed a letter to the Chancellor to keep the old scheme open. DUP MP Emma Little-Pengelly said while the employer-backed scheme was ‘far from perfect’, there was some evidence it offered a better deal for some parents than the new, tax-free childcare scheme, which has been beset with teething problems.

‘The DUP is delighted that the government has agreed with our proposal to delay the scheme’s closure for a period of at least six months.

‘This period will be used to address concerns raised about the scheme and to look at new provisions to address childcare accessibility and affordability in Northern Ireland and throughout the UK,’ she said.

Aon Employee Benefits said the government’s surprise decision should be welcomed by employees, but warned it causes complexities for employers who have already initiated the changes.

Jeff Fox, principal at Aon Employee Benefits, said: ‘To date, the government and HMRC have remained resolute that the policy to close the existing scheme would come into effect on 6 April, and employers and consultants have been working to this policy.

‘However, it is welcome news that employees have the opportunity to join the current employer-provided CCV scheme for a further six months. It’s been clear that the replacement tax-free childcare scheme, intended to replace employer-sponsored childcare vouchers, has not come without challenges.’

HMRC has not yet clarified whether schemes need to remain open to retain the ‘available to all’ requirement and whether an organisation can use a closed scheme while still allowing existing members to retain their current tax privileges.

Fox said: ‘It is clear that many employees will be looking to their employer to offer an extended scheme, so the situation is critical. Employers should engage with their benefit providers at the earliest opportunity to consider the options.

‘Given the extraordinary nature of this development and the fact it creates further uncertainty for employers, we can see that many organisations will be reluctant to offer an open scheme. We hope that HMRC is supportive of organisations that take this decision and do not penalise them for making pragmatic decisions.’

CCH Daily