Wednesday, 12 June 2019

A warning about Government childcare schemes

When anyone we know has a childcare cost question, they turn to Jonni - his job is an employee reward and benefits specialist, he's been advising companies how to set up childcare voucher benefits for years and... he's always chatting to friends like us at the pub about how to make best use of them! ("OK," he laughs, "so I might not be your drinking buddy of choice for that reason but everyone needs a semi useful friend don’t they?")

We do! Jonni's the childcare cost guru - so we were so grateful that he's written a few words on one of the biggest mistakes he made (and we shouldn't) with Childcare Vouchers or the new Tax-Free Childcare scheme (confused by the lingo? Click here for our guide to childcare costs).
Over to Jonni: 

"I’d always envisaged that when the time was right and my little one was ready to fly the nest into the arms of the best childminder, my hard earned cash would be used in the most financially effective manner... right?

Well, not quite. It's 8 years since I started saving up vouchers, and I still have a rather too-healthy childcare voucher account, as things didn’t quite go to plan. 

My wife, quite understandably, looks for convenience rather than cost-effectiveness, so when she found a seemingly good childminder across the road from where she worked, they were the obvious choice. My wife is not one to argue with - particularly as she was going to be doing most of the hard work. 

The fact that the Ofsted-registered childminder insisted on being paid in cash, and would only accept childcare vouchers when our little one was in her care full time, rather than our initial part-time plan, (and even then only take vouchers for a small percentage of the total), meant that the tax efficient payments I’d diligently saved since day one sat gathering dust whilst the ATM took a weekly hammering. 

It never occurred to me that a childminder who said on their website that they took vouchers would have such restrictive terms. I'd recommend you ask lots of questions before signing up.

Fast forward several years, and whilst there are summer camps and after school clubs that will take vouchers outside of school time - guess what? They're not always the ones our kid’s friends are going to ... so they don’t get picked. 

Whether you’re paying with childcare vouchers or via Tax-Free childcare, not everyone will be registered or accept payment in full through your chosen method. It’s a bit like trying to pay with an American Express card in your local independent coffee shop: they want your money just not in the form you want to pay it to them. 

I stopped claiming Childcare Vouchers as soon as I realised, but my employer only allowed a once a year change as my circumstances were not considered 'a pre planned lifestyle event' - frustrating as that was for me. In common with many companies I couldn’t get a refund of the Vouchers either. 

With Tax Free Childcare, it’s up to you when you change or stop contributions to your account and you can withdraw payments (after the tax saving has been returned to HMRC).  

That’s still a bit inconvenient at a time when you're juggling work, and kids, and life admin is not exactly a priority... But if the arrangement works for you, the tax saving that the scheme operates is not to be sniffed at. 

So whether you’re one of the declining group who got into your employer’s Childcare Voucher scheme before it closed to new joiners (from October 2018), or are in the Government’s Tax Free Childcare scheme, I'd recommend you do lots of research to find out the exact terms of your chosen payment route. 

Otherwise you could be left with what would otherwise be considered a nest egg which is increasingly difficult to spend to help your little ones flee the nest.
By Jonathan Berger, Employment Tax and Employee Reward Consultant

* This post is written in a personal capacity as an opinion piece and does not constitutive financial or professional advice. It should not be relied on or acted in without seeking appropriate professional advice. 
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