How do vouchers interact with other schemes?

Updated on 7 November 2018

Help with childcare costs is a complicated area because the Government offers different schemes. Each scheme has different qualifying rules and often the amount you receive can be different. Sometimes if you claim help from one scheme, that can stop you claiming help from other schemes and so you will need to try and work out which one is better for you based on your circumstances.

This section explains how the childcare vouchers interact with other childcare schemes. The rules for claiming childcare vouchers changed from 4 October 2018 – see our ‘who can claim vouchers?’ section for more information.

Tax credits and childcare vouchers

Childcare vouchers are part of Employer Supported Childcare (ESC). Your employer may offer you childcare vouchers in addition to your salary or in exchange for you giving up part of your salary (called a salary sacrifice). By taking childcare vouchers you will save on some tax and National Insurance.

There is nothing to stop you receiving tax credits and childcare vouchers at the same time. However, you can only claim help through tax credits for costs you actually incur. This means you must deduct the value of any vouchers from your average weekly childcare costs for tax credit purposes.

For example, if your childcare costs are £150 a week for one child and you get vouchers of £55 a week from your employer, you can only claim £95 a week as your costs for the childcare element of tax credits.

In some cases the amount of tax and National Insurance you save from taking the vouchers may not make up for the amount of tax credits you lose.

Most people who qualify for tax credits are likely to be better off claiming help through the childcare element of tax credits and not taking childcare vouchers offered through a salary sacrifice. This is because initially you will lose significantly more tax credits than you will gain in tax and National Insurance savings from taking the vouchers and over the longer term you will gain only a small amount from the vouchers. This  shows how the interaction between the two schemes works.

However there are some exceptions to this rule. For example, if your childcare costs are a lot higher than £175 a week for one child or £300 a week for two or more children then you can claim vouchers as well as the maximum amounts of tax credits. Similarly, if your employer offers you vouchers in addition to your salary (rather than as a salary sacrifice) you will be better off taking them.

This means it is important that you check your own position carefully and work out which is better. 

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Universal credit and childcare vouchers

Childcare vouchers are part of Employer Supported Childcare (ESC). Your employer may offer you childcare vouchers in addition to your salary or in exchange for you giving up part of your salary (called a salary sacrifice). By taking childcare vouchers you will save on some tax and National Insurance.

There is nothing to stop you receiving universal credit and childcare vouchers at the same time. However, you can only claim help through universal credit for costs you actually incur. This means you must deduct the value of any vouchers from the childcare costs that you report to DWP for your universal credit claim. 

For example, if your childcare costs are £500 a month for one child and you get vouchers of £238 a month from your employer, you can only claim £262 a month as your costs for the childcare element of universal credit.

In some cases the amount of tax and National Insurance you save from taking the vouchers may not make up for the amount of universal credit that you will lose.

Most people who qualify for universal credit are likely to be better off claiming help through the childcare element of universal credit and not taking childcare vouchers offered through a salary sacrifice. This is because initially you will lose significantly more universal credit than you will gain in tax and National Insurance savings from taking the vouchers.

However there are some exceptions to this rule. For example, if your childcare costs are a lot higher than the monthly maximums for universal credit then you can claim vouchers as well as the maximum amounts of universal credit.

This means it is important that you check your own position carefully and work out which is better. You should contact a welfare rights adviser at a local advice agency for further support. 

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Tax-free childcare and childcare vouchers

TFC is the new childcare scheme that is designed to replace childcare vouchers and directly contracted childcare support from employers. It started to roll-out to certain groups of people from 21 April 2017 and was fully rolled-out by 14 February 2018.

The tax and NIC relief associated with childcare vouchers and directly-contracted childcare was withdrawn from 4 October 2018. Certain people who signed up before that date are eligible to continue receiving the relief. See our ‘who can claim vouchers?’ page for more information.

Parents cannot benefit under both schemes at the same time. Anyone currently claiming childcare vouchers/directly-contracted childcare and who has given their employer a ‘Childcare Account Notice’ (explaining their intention to claim TFC instead and leave the voucher scheme) can no longer claim the tax and NIC relief associated with childcare vouchers and directly-contracted childcare. 

Even if they subsequently leave the TFC scheme and meet the conditions for continuing to benefit from the tax and NIC relief on childcare vouchers or directly-contracted childcare, they cannot rejoin their voucher scheme. 

For a useful overview of childcare vouchers in comparison to TFC, please see this government briefing.

See our TFC section for more information.

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Can I use vouchers in conjunction with the government’s free childcare hours offering?

Yes, you can use vouchers in conjunction with the 15/30 free childcare hours offering – to help pay for any childcare costs over and above the 15/30 free hours for example.

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Where can I find more information?

You can contact your local Family Information Service for more information about childcare in your area.

GOV.UK contains a basic summary of the help you can get with childcare costs, including more on childcare vouchers and other employer schemes.

You could also check out the Government’s Childcare Choices website for further information, including a link to the Government’s childcare calculator, which helps you work out what support might be available to you.

HMRC’s technical guidance on childcare vouchers can be found, starting at page EIM16051 in the Employment Income Manual.

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