Answers · UK 2025/26
Should I use Tax-Free Childcare or a salary sacrifice scheme for childcare costs?
It depends. Tax-Free Childcare gives a 20% government top-up (GBP 2 for every GBP 8 you pay, up to GBP 500 per quarter per child). The older employer childcare voucher salary-sacrifice scheme is closed to new entrants. You generally cannot use both at once, so compare which saves more for your earnings and childcare bill.
Full answer
Tax-Free Childcare is the current government scheme. For every GBP 8 you pay into an online childcare account, the government adds GBP 2, up to GBP 500 per quarter (GBP 1,000 for a disabled child) per child -- effectively a 20% subsidy on eligible costs. It is open to working parents within set earnings limits, but you cannot claim it at the same time as Universal Credit childcare support or the old voucher scheme. Childcare vouchers via salary sacrifice closed to new joiners in October 2018. If you were already in such a scheme before then and have stayed in it continuously, you may keep using it. Under salary sacrifice you give up part of your gross salary in exchange for vouchers, saving Income Tax and employee National Insurance on the sacrificed amount. The value of that saving depends on your marginal rate. Who this affects: working parents paying for registered childcare. New parents will use Tax-Free Childcare; only long-standing scheme members still have the voucher option. Worked example of the voucher mechanism: a basic-rate taxpayer in 2026/27 sacrificing GBP 1,000 of salary saves 20% Income Tax plus 8% employee NI -- about GBP 280 -- on that amount. A higher-rate taxpayer saves 40% tax plus 2% NI, around GBP 420. Tax-Free Childcare instead gives a flat 20% top-up regardless of your tax band, which often makes it more generous for basic-rate earners and for those with several children, while vouchers can favour some higher-rate earners. 2026/27 note: the precise eligibility income limits and the funded free-hours entitlements change periodically and are not part of the tax rate card, so check gov.uk for current thresholds. To compare the take-home impact of a salary sacrifice arrangement, run your figures through the take-home pay calculator before deciding.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.