Statistics£8,000 – The amount working parents need to spend on childcare per year to get £2,000 from the government through the new scheme17% of respondents put childcare vouchers in their top three favourite benefits, compared to 19% in 2015 (Source: Willis PMI Group, April 2016)58% of respondents do not offer childcare support to staff (Source: Jelf Employee Benefits, October 2015)18% of employer respondents have communicated the changes to childcare provision to staff (Source: Jelf Employee Benefits, October 2015)£7,933 – The combined price of a part-time nursery place for a child under two and an after-school club for a five-year-old (Source: The Family and Childcare Trust, February 2016) £202.22 – The British average price of a childminder full-time (50 hours) per week (Source: The Family and Childcare Trust, February 2016) The factsWhat are childcare vouchers?This is a government-backed scheme to help working parents afford quality childcare. Depending on their income, parents can receive childcare vouchers worth up to £243 a month from their employer, free of tax and national insurance (NI) contributions. Vouchers can be used for a range of regulated providers, such as nurseries, play groups, nanny services, childminders and au pairs, and are valid up to the September following a child’s 15th birthday or, if the child is disabled, their 16th birthday. From early 2017, childcare vouchers will be phased out and replaced by the government’s new tax-free childcare scheme.What are the origins of childcare vouchers?Childcare vouchers were first provided in the late 1980s by some of the UK’s largest employers to help employees meet childcare costs. The tax exemption in its current guise began in April 2005.Where can employers get more information?More information is available from the Childcare Voucher Providers Association at www.cvpa.org, and the Family and Childcare Trust at www.familyandchildcaretrust.org. Information about the government’s new scheme can be found on the government website at www.gov.uk/government/news/tax-free-childcare-10-things-parents-should-know.What are the legal implications?All childcare providers and facilities must be government approved and HM Revenue and Customs (HMRC) must be notified of schemes. If vouchers are offered through salary sacrifice arrangements, employees’ contracts must be amended. Employers must continue to provide vouchers to employees on maternity or adoption leave. However, this may change following a case heard by the Employment Appeal Tribunal earlier this year.What costs are involved?Costs to set up a scheme will vary depending on the size of the employer and the provider, which will normally charge a fee to administer a scheme. Some providers have fixed charges regardless of staff take-up rates.What are the tax issues?Vouchers provided in accordance with HMRC guidelines are free of tax and NI up to the permitted limit of £243 a month for basic-rate taxpayers. Employers must carry out an earnings-based assessment to make sure the employee falls within that banding. Low-paid workers and those receiving working tax credits may not be eligible for childcare vouchers.What is the annual spend on childcare vouchers?Figures are collated by HMRC on a voluntary and unverified basis, so exact statistics are not available.Who are the main providers?More than 40 organisations provide childcare vouchers, including Allsave, Bright Horizons, Busy Bees Benefits, Computershare Voucher Services, Co-operative Flexible Benefits, Edenred, Faircare, Fideliti, Grass Roots, Kiddivouchers, My Family Care, P&MM and Sodexo.Childcare vouchers were first introduced in the 1980s and originally only carried a national insurance (NI) exemption. The current tax exemption was introduced in 2005, then in 2011 the scheme went through a further change when the amount of vouchers that higher-rate taxpayers could claim was capped to offer the same tax exemption.Working parents are able to buy, usually through a salary sacrifice arrangement offered by their employer, up to £243 worth of vouchers each month tax and NI free. Salary sacrifice enables the employee to pay for the vouchers out of their gross salary.The vouchers can be used to pay an Ofsted-registered childcarer, or the equivalent in Scotland and Wales. Higher-rate tax payers are entitled to £124 a month, and additional-rate taxpayers are entitled to £110 a month.The scheme is attractive to organisations, as well as being beneficial to working parents, because the vouchers are free from employers’ NI contributions, up to 13.8%.A scheme must meet certain criteria to gain the tax and NI exemptions: it must be offered to all employees within an organisation, except for those whose salary would fall below minimum wage rates as a result of sacrificing salary; the vouchers must only be used to pay for registered childcare for children up to age 15; and, since 2011, an employer must carry out a basic earnings assessment for each employee who joins the scheme.Changes to tax-free childcareThe market is currently facing its next major change from 2017, when a new tax-free childcare scheme will be introduced, replacing the voucher scheme for all new entrants. Employees that are currently in a voucher scheme can stay in it for as long as their employer continues to offer it, or for as long as they stay at that organisation, but after the new scheme takes effect no working parents will be able to join a voucher scheme.When the new scheme was first announced in the 2013 Budget, Chancellor George Osborne initially said it would be worth up to £1,200 per child per year. However, following a public consultation, the government increased the limit to £2,000 per child per year. It was originally due to come into effect in autumn 2015, but has been delayed until early 2017 following a ruling by the Supreme Court.In the March 2016 Budget, the government announced that the new scheme will be phased in, in a roll-out approach throughout the year, with parents of the youngest children entering the scheme first. The existing childcare voucher scheme will then remain open until April 2018 to new entrants to support the changeover between the two schemes.The new tax-free scheme will be available for up to £10,000 of childcare costs per child per year, with no limit on the number of children for whom a parent can claim. For example, a parent claiming the full £10,000 will pay £8,000, with the government paying a subsidy of £2,000.New online tax-free childcare accounts will be run by HM Revenue and Customs (HMRC) in partnership with National Savings and Investments (NS&I). Vouchers will be available to be bought online, and can only be used to pay for Ofsted-regulated childcare.From 2017, employers will no longer be responsible for providing staff with childcare vouchers, but the tax exemption for workplace nurseries will remain.The new tax-free childcare scheme is designed to support childcare for under-12s, with eligibility ending in the first week of September following the child’s 11th birthday, unless the child is disabled, in which case they will qualify up to the age of 17. The scheme will also be available to parents on paid sick leave, on paid or unpaid statutory maternity leave and on paternity or adoption leave.The scheme is designed to be flexible for parents if, for example, they want to go back to work after the birth of a child or to work part time. They will be able to build up a balance and withdraw money from their childcare accounts. Multiple people or parties will be able to pay into childcare accounts, giving all parents, or their employers, the opportunity to contribute.Impact of tax-free childcareWhen the new scheme was first announced, with a £6,000 cap on costs, working couples with one child would have been worse off. But by raising the cap to £10,000, the government has ensured some parents can claim more.According to government figures, a working couple with one child will be £134 a year better off if they spend the maximum £10,000, while a working couple with three children will be £5,375 better off. A single parent with two children will be able to claim £3,067 more a year.However, a working couple with one child paying about £5,000 a year for childcare will be worse off under the new regime because they can only claim 20% of their costs, or £1,000 a year. Those with two children, spending £5,000 on each, will be better off.There will be an upper income limit of £100,000 per parent, lowered from £150,000 in the original proposal. Parents will only qualify if they work at least 16 hours a week.The new arrangement will not provide any NI savings, currently worth up to 12% for basic-rate taxpayers and up to 13.8% for employers. This will amount to a significant loss for some employers, which could affect the amount they spend on other employee benefits. Local authorities and NHS trusts are among the employers that could be worst hit. Since the changes were announced, providers have been urging employers to communicate the changes to staff to ensure that they are fully aware of the choices available to them, and if they are not in a voucher scheme before the changes take effect, that they are made aware they will not be able to join past a certain date.