Tax-Free Childcare vs Childcare Vouchers UK 2026

Two UK government childcare-cost-support schemes exist in 2026: the legacy Childcare Vouchers scheme (closed to new joiners since October 2018, but existing members can stay) and the newer Tax-Free Childcare (TFC, open since April 2017). They're mutually exclusive - you can't use both. Choosing the wrong one costs an average household £600-£1,500 a year.

This guide explains both, gives the maths for each common household type, and tells you when (if ever) to switch.

To check whether the tax, NI and PAYE lines look right on your own slip, see How do I check my payslip is correct?.

How each scheme works

Childcare Vouchers (legacy, closed scheme)

Pre-October-2018 joiners can continue. Mechanism:

• Employer arranges salary sacrifice with a voucher provider (Computershare, Edenred, etc).
• You give up part of your gross salary (up to a monthly cap that depends on when you joined) and receive vouchers of equivalent value.
• Vouchers exempt from PAYE income tax AND from NI for the employee.
• Employer also saves their 15% secondary Class 1 NIC on the sacrificed pay.
• Vouchers can be used to pay any registered childcare provider (nursery, childminder, after-school club, holiday club).

Monthly caps for current voucher members:

Tax-Free Childcare (current open scheme)

Open to new and existing applicants. Mechanism:

• Open an online TFC account (no employer involvement needed).
• For every £8 you put in, the government adds £2 (a 25% top-up).
• You pay registered childcare providers directly from the TFC account.
• Annual top-up cap: £2,000 per child (£500 per quarter), or £4,000 per child if disabled.
• Both parents can pay in.

Eligibility

Childcare Vouchers eligibility (existing members only)

• Must have been receiving vouchers via your employer's salary-sacrifice scheme on or before 4 October 2018.
• Must continue to receive at least one voucher every 12 months - break the chain and you can't return.
• Your employer must still operate a scheme (some have wound theirs down).
• One parent participating per family is fine; both can if both employers offer vouchers.

Tax-Free Childcare eligibility

You and your partner (if you have one) must each:

• Earn at least the National Living Wage × 16 hours/week (£12.71 × 16 = £203.36/week in 2026/27, ~£10,575/year).
• Earn less than £100,000 each.
• Not be in receipt of Universal Credit, Tax Credits, or Childcare Vouchers.
• The child must be under 12 (or under 17 if disabled).

The £100,000 limit is per parent. If one of you earns £101,000, neither qualifies - even though the other earns £20,000. This is one of the most-cited unfairnesses of the scheme.

The maths - when each one wins

Scenario 1 - single parent, basic-rate taxpayer, one child in nursery £900/month

TFC route:
  Annual childcare cost:              £10,800
  TFC top-up (capped at £2,000):      £2,000
  Net cost to family:                 £8,800

Childcare Vouchers route (basic-rate, £243/month):
  Vouchers received:                  £2,916
  Tax saved (20%):                    £583
  NI saved (8%):                      £233
  Total annual saving:                £816
  Net cost to family:                 £9,984

Winner: TFC by £1,184/year.

Scenario 2 - couple, both higher-rate, two children, total childcare £24,000/year

TFC route:
  Annual childcare cost:              £24,000
  TFC top-up (£2k per child × 2):     £4,000
  Net cost to family:                 £20,000

Childcare Vouchers route (one parent on vouchers, higher-rate £124/month):
  Vouchers received:                  £1,488
  Tax saved (40%):                    £595
  NI saved (2%):                      £30
  Total annual saving:                £625
  Net cost to family:                 £23,375

  If BOTH parents on vouchers (both £124/month):
  Combined annual saving:             £1,250
  Net cost to family:                 £22,750

Winner: TFC by £2,750-£3,375/year.

Scenario 3 - couple, one earner £105,000, other £30,000

This couple is NOT eligible for TFC because one earner exceeds £100,000.

TFC route:                             NOT AVAILABLE

Childcare Vouchers route:
  If lower earner had vouchers in legacy scheme: £243/month
  Annual saving (basic-rate): £816
  
  If higher earner had vouchers in legacy scheme: £124/month
  Annual saving (higher-rate): £625

  Otherwise: £0 government support.

This is the single most painful childcare-policy gap in 2026. Couples just above £100k get no TFC and may have no vouchers either.

The fix at family level is a pension contribution that brings one parent's adjusted net income back below £100,000. Sacrificing £5,000 to take a £105,000 earner to £100,000 restores Tax-Free Childcare worth up to £4,000 a year for two children, at £2,000 each (GOV.UK). The £5,000 is not lost either - it is in the pension, and it was going to be taxed at the 60% marginal rate that applies between £100,000 and £125,140. If you are anywhere near the threshold, this is worth recalculating every year.

Scenario 4 - childcare cost only £200/month per child

TFC route:
  Annual childcare cost (one child):   £2,400
  TFC top-up (20% of the cost):          £480
  Net cost:                            £1,920

Childcare Vouchers route (basic-rate, £243/month cap):
  Used: £200/month = £2,400/year, all within the cap
  Tax saved (20%):                       £480
  NI saved (8%):                         £192
  Total annual saving:                   £672
  Net cost:                            £1,728

Winner: Childcare Vouchers by £192/year.

This one goes the other way, and the reason is worth understanding. A basic-rate voucher saves 28p in the pound (20% tax plus 8% NI); TFC tops up 20p in the pound. So while your whole childcare bill fits inside the £243-a-month voucher cap, vouchers pay more. Above the cap the voucher saving freezes at £816 a year while the TFC top-up keeps growing, and TFC overtakes at an annual childcare cost of about £4,082 (roughly £340 a month).

The pattern: TFC wins for most families because most childcare bills are well above that crossover, and it is the only scheme open to new joiners. Childcare Vouchers win for existing members with modest bills, and can also win with very high bills where both parents hold vouchers.

When to keep your existing voucher scheme

Stay on Childcare Vouchers if:

1. You're disqualified from TFC (one earner > £100,000, or you're on Universal Credit / Tax Credits).
2. You've calculated the maths AND vouchers wins for your specific situation (rare).
3. Your childcare costs are very low AND the voucher tax saving is small but reliable.
4. You may have multiple children in the future and want to preserve the option.

Switch to TFC if:

1. You qualify for TFC AND you have moderate-to-high childcare costs AND TFC wins on the maths above (the typical case).

Once you switch, you cannot go back to vouchers. So model carefully.

Salary sacrifice considerations

Both schemes interact with other parts of your pay:

• Childcare Vouchers are a salary sacrifice - they reduce your taxable pay and your NIable pay. This affects mortgage affordability (lenders may use post-sacrifice gross), pension contributions (if pension is calculated on gross), and statutory pay (SMP, SPP, SSP, ShPP - all calculated on gross post-sacrifice).
• TFC is NOT a salary sacrifice - your gross stays the same. The government top-up happens at the TFC account, not in your payroll. Mortgage affordability and statutory pay are unaffected.

For mortgage applicants, this is sometimes a decisive factor. Switching from vouchers to TFC bumps your gross-for-mortgage-purposes - useful when affordability is tight.

How to apply

TFC

Apply at gov.uk/tax-free-childcare. The HMRC website asks for:

• Both parents' employment status.
• Both parents' earnings.
• Each child's date of birth and any disability adjustments.

Approval is usually instant. You can pay providers as soon as the account is funded.

Childcare Vouchers (only if already a member)

Through your employer's HR or directly with the voucher provider (Computershare, Edenred, Sodexo). If you let your scheme lapse for over 12 months, you cannot rejoin.

Disclaimer

PayslipIQ provides automated educational guidance based on the figures you supply. It is not regulated tax or financial advice. Childcare scheme rules interact with Universal Credit, Tax Credits, and the £100,000-income cliff in complex ways. For families near the £100k threshold or considering pension contributions to qualify for TFC, an FCA-regulated adviser or CTA-qualified tax adviser is worth the fee.