For most working families, Tax-Free Childcare vs salary sacrifice childcare vouchers comes down to a simple test: Tax-Free Childcare usually saves more, but if you already receive vouchers and either earn over £100,000 or spend relatively little on childcare, staying in the voucher scheme can still be the better deal. You cannot use both at once, and the voucher scheme has been closed to new members since 4 October 2018,1GOV.UK. Childcare Vouchers and Other Employer Schemes so this is only a live choice if you were already enrolled by that date.
You Have to Pick One
The Childcare Payments Act 2014 makes it illegal to receive employer childcare vouchers and Tax-Free Childcare top-ups at the same time.2Legislation.gov.uk. Childcare Payments Act 2014 Once you open a Tax-Free Childcare account, you have 90 days from receiving your first top-up to give your employer written notice to stop issuing vouchers.1GOV.UK. Childcare Vouchers and Other Employer Schemes At that point your salary sacrifice agreement ends and your gross pay returns to its full pre-sacrifice amount.
Treat the switch as one-way. Because the voucher scheme is closed to new entrants, leaving it means you cannot rejoin. That makes the arithmetic worth doing carefully before you cancel anything.
What Each Scheme Actually Gives You
Tax-Free Childcare is an online account you pay into to cover your childcare bills. For every £8 you deposit, the government adds £2, up to a maximum top-up of £500 per quarter or £2,000 per year, per child. For a disabled child, the caps double to £1,000 per quarter and £4,000 per year. Your child must be 11 or younger, or 16 or younger if disabled.3GOV.UK. Tax-Free Childcare Employed and self-employed parents both qualify.
Childcare vouchers work through salary sacrifice. You give up part of your gross pay and receive vouchers of equivalent value; because the sacrifice happens before tax and National Insurance, you save on both. The weekly tax-exempt limit depends on your income tax band: £55 for basic rate, £28 for higher rate, and £25 for additional rate taxpayers. Salary sacrifice cannot take your hourly pay below the National Minimum Wage, so your employer will cap the deduction if it would.4GOV.UK. Salary Sacrifice for Employers
Which Scheme Saves More
Three variables decide the answer: your tax band, how many children you have in paid childcare, and how much you spend.
Basic Rate Taxpayers
Sacrificing the full £55 per week comes to £2,860 a year in vouchers, and the combined income tax and NI savings work out to roughly £800 to £900. Tax-Free Childcare offers up to £2,000 per child per year. If you spend more than about £5,000 a year on childcare for one child, Tax-Free Childcare almost certainly wins. With two or more children in paid childcare, the comparison is not close: the TFC top-up runs per child, while the voucher exemption runs per parent.
Higher Rate Taxpayers
Higher rate taxpayers save at 40% on the sacrifice, but the weekly cap drops to £28. Annual savings land around £600. Tax-Free Childcare’s £2,000 per child comfortably beats that for most families earning between the higher rate threshold and £100,000.
Anyone Earning Over £100,000
This is the one place vouchers hold a clear edge. Tax-Free Childcare excludes anyone with adjusted net income over £100,000, and if you are in a couple that limit applies to each of you.5GOV.UK. Tax-Free Childcare – Check if You’re Eligible Existing voucher scheme members earning above the threshold can still sacrifice up to £25 per week. The saving is modest, but it beats no help at all.
Two Working Parents
If both parents work and both employers still run voucher schemes, each parent gets their own voucher allowance. Two basic rate taxpayers could save roughly £1,600 to £1,800 between them. Even so, Tax-Free Childcare’s per-child top-up tends to overtake that once childcare costs climb above a few thousand pounds, particularly with more than one child.
Eligibility Gates That May Decide It For You
Before running the numbers, check whether Tax-Free Childcare is actually open to your household. Both parents in a couple, or the sole parent in a single-parent household, must meet the criteria.
- Minimum earnings: Each parent must expect to earn at least the equivalent of 16 hours per week at the National Minimum Wage over the next three months. For someone aged 21 or over, that works out to at least £203.36 per week from April 2026.5GOV.UK. Tax-Free Childcare – Check if You’re Eligible
- Maximum income: Neither parent’s adjusted net income can exceed £100,000 per year, including foreign income.5GOV.UK. Tax-Free Childcare – Check if You’re Eligible
There are exemptions to the work requirement. If one parent is employed and the other receives certain disability benefits, Carer’s Allowance, or is on statutory parental leave, the household can still qualify. The working partner still needs to meet the minimum earnings test.
If you keep receiving vouchers, the main things that can end your membership are changing employer, an employer choosing to close its scheme, or taking an unpaid career break longer than one year.1GOV.UK. Childcare Vouchers and Other Employer Schemes
How to Switch If Tax-Free Childcare Wins
Two things need to happen in parallel: cancelling the salary sacrifice at work and applying for the Tax-Free Childcare account online.
For the employer side, submit a written notice (sometimes called a notice of variation or cancellation form) to HR or payroll stating you want to end the salary sacrifice. Line it up with your employer’s payroll cutoff so the timing is clean. Your gross pay returns to its full amount once processed, and vouchers stop being issued.
For the government side, apply through the GOV.UK Childcare Service. You’ll need your National Insurance number and your child’s details. The system checks your eligibility against HMRC records; you usually get an answer straight away, though it can take up to seven days.6GOV.UK. Apply for Tax-Free Childcare
One check to do before you cancel anything: confirm that your childcare provider is registered to accept Tax-Free Childcare payments. If they are not, you will not be able to pay them through the account.
Leftover Vouchers Do Not Expire
Switching does not wipe out an existing voucher balance. You can carry on spending vouchers you have already accrued, with no deadline, and you can even use leftover vouchers alongside your Tax-Free Childcare account to pay the same provider.1GOV.UK. Childcare Vouchers and Other Employer Schemes What ends is the issuance of new vouchers, not the ability to spend the ones you already hold. If you have been stockpiling a balance in cheaper months, none of it is lost.
Keeping the Top-Up: Reconfirmation and Penalties
Tax-Free Childcare is not set-and-forget. You must reconfirm your eligibility every three months to keep receiving the government top-up.7GOV.UK. Tax-Free Childcare Technical Manual – TFC15300 The check is a brief online confirmation that you are still working, still earning above the minimum, and still under the £100,000 income ceiling.
Missing the deadline does not close your account, but it switches it to pay-only mode: you can keep depositing money and paying your provider, but the 20% top-up stops until you reconfirm.7GOV.UK. Tax-Free Childcare Technical Manual – TFC15300 A calendar reminder is worth setting.
HMRC also takes eligibility declarations seriously. If you claim Tax-Free Childcare when you are not entitled and the inaccuracy is careless, the penalty is 25% of the maximum top-up for the entitlement period, which works out to £125 for a standard quarter. If the inaccuracy is deliberate, the penalty doubles to 50%, or £250. You are expected to notify HMRC promptly if your circumstances change after a declaration; failing to take reasonable steps to report it can itself trigger a penalty.8GOV.UK. Tax-Free Childcare Technical Manual – TFC60200 The two most common triggers are a pay rise that pushes adjusted net income above £100,000, and a partner stopping work without the account being updated.