Tax-Free Childcare vs Childcare Vouchers 2026/27: Which Saves More?

Paying for childcare is one of the biggest expenses for working parents in the UK. The government offers two main schemes to help: Tax-Free Childcare (TFC) and childcare vouchers. But which one saves you more money? The answer depends on your income, your marginal tax rate, and how much childcare you use. This guide compares both schemes and helps you work out which is better for your situation.

What is Tax-Free Childcare (TFC)?

Tax-Free Childcare is a government scheme that has run since April 2017. For every GBP 80 you pay into a TFC account, the government adds GBP 20 free credit. This caps at GBP 2,000 of free credit per child per year (or GBP 500 per quarter).

Key facts about TFC:

• Maximum government contribution: GBP 2,000/year per child (GBP 500/quarter).
• This means maximum you must pay: GBP 8,000/year per child to get the full GBP 2,000 credit.
• Age eligibility: From 15th of the month in which the child turns 11 months until the 15th of September following their 14th birthday. (Note: the upper age limit will increase to 16 from September 2026, and to 17 from September 2027.)
• Household income: Both parents must each earn at least GBP 120/week (approximately GBP 6,240/year). High earners lose eligibility: if either parent earns over GBP 100,000, the relief is withdrawn.
• Tax treatment: The GBP 2,000 government credit is tax-free. Your own GBP 8,000 contribution is taken from net (after-tax) income, not pre-tax.

What are Childcare Vouchers (Legacy)?

Childcare vouchers were the original government scheme for childcare, introduced in 2005. They were closed to new joiners from October 2018, but existing users can continue to use them indefinitely. The scheme allows employers to give vouchers (up to GBP 243/week or approximately GBP 12,600/year per employee) that employees can use to pay registered childcare providers.

Key facts about childcare vouchers:

• Maximum scheme limit: GBP 243/week (GBP 12,636/year).
• Tax relief: Because the vouchers are paid by the employer from gross salary (via salary sacrifice), they're free of income tax and National Insurance.
• Eligibility: Closed to new joiners since October 2018, but legacy users (those who joined before) can continue.
• Tax relief value depends on your tax rate:
  • Basic-rate taxpayer (20% tax + 8% NI = 28% total): GBP 12,636 × 28% = GBP 3,538 tax and NI saving.
  • Higher-rate taxpayer (40% tax + 8% NI = 48% total): GBP 12,636 × 48% = GBP 6,065 tax and NI saving.

Comparing the Two Schemes

The best way to compare is to look at the tax and NI savings for different income levels, assuming you use the full allowance of each scheme.

Scenario 1: Basic-Rate Taxpayer (GBP 35,000 salary)

Tax-Free Childcare (GBP 2,000 credit):

• Government contribution: GBP 2,000 (free)
• Your contribution: GBP 8,000 (from net income)
• Effective childcare cost: GBP 8,000 (you save GBP 2,000)
• Annual saving: GBP 2,000

Childcare Vouchers (if still eligible):

• Vouchers: GBP 243/week × 52 = GBP 12,636/year
• Tax saving: GBP 12,636 × 20% = GBP 2,527
• NI saving: GBP 12,636 × 8% = GBP 1,011
• Annual saving: GBP 3,538
• Net childcare cost: GBP 12,636 - GBP 3,538 = GBP 9,098

Winner for basic-rate taxpayer: Childcare vouchers save GBP 1,538 more per year.

Scenario 2: Higher-Rate Taxpayer (GBP 60,000 salary)

Tax-Free Childcare (GBP 2,000 credit):

• Government contribution: GBP 2,000 (free)
• Your contribution: GBP 8,000 (from net income)
• Annual saving: GBP 2,000 (same as basic-rate taxpayer)

Childcare Vouchers (if still eligible):

• Vouchers: GBP 243/week × 52 = GBP 12,636/year
• Tax saving: GBP 12,636 × 40% = GBP 5,054
• NI saving: GBP 12,636 × 8% = GBP 1,011
• Annual saving: GBP 6,065
• Net childcare cost: GBP 12,636 - GBP 6,065 = GBP 6,571

Winner for higher-rate taxpayer: Childcare vouchers save GBP 4,065 more per year.

Scenario 3: Highest Earner (GBP 125,000 salary)

Tax-Free Childcare:

• Not eligible if either parent earns over GBP 100,000. At GBP 125,000, you'd be ineligible.
• Annual saving: GBP 0

Childcare Vouchers (if you joined before Oct 2018):

• Vouchers: GBP 12,636/year
• Tax saving: GBP 12,636 × 45% (additional rate) = GBP 5,686
• NI saving: GBP 12,636 × 2% (above GBP 50,270) = GBP 253
• Annual saving: GBP 5,939

Winner for highest earner: Childcare vouchers save GBP 5,939 per year; TFC is unavailable.

Why Childcare Vouchers Are Better (If You Qualify)

Childcare vouchers are more valuable because:

1. Higher limit: GBP 12,636/year vs. GBP 2,000 from TFC.
2. Pre-tax savings: Vouchers are salary-sacrificed from gross income, avoiding both income tax and NI. TFC gives you credit on net income (money you've already paid tax on).
3. Effective rate of return: With childcare vouchers, a higher-rate taxpayer gets 48% relief (40% tax + 8% NI). With TFC, the "relief" is just the 25% uplift (GBP 20 for every GBP 80).

Why TFC Exists (And When It Might Be Better)

Tax-Free Childcare was introduced in 2017 partly because many employees work for small employers that don't offer childcare vouchers. With TFC, you don't need an employer scheme -- you can access it directly via a government account.

TFC might be "better" than it appears if:

1. Your employer doesn't offer childcare vouchers (and most small employers don't) -- then TFC is your only option.
2. You use part-time childcare -- If you only need GBP 3,000/year of childcare, you'd pay GBP 3,000 with TFC (getting GBP 750 credit), while childcare vouchers might be overkill if your employer only offers the full amount.
3. You're self-employed -- Self-employed people can't access childcare vouchers (they're an employer-provided benefit), but they can use TFC.

TFC and Childcare Vouchers: Can You Use Both?

No. You cannot use both schemes simultaneously for the same child. You must choose one or the other. However, some employees use TFC for one child and vouchers for another (if they have multiple children), or switch schemes year-to-year if their circumstances change.

Restrictions and Edge Cases

For TFC:

• Age limit: From age 11 months (15th of month of birth) to age 14 (increasing to 17 by 2027).
• Income: Both parents must earn at least GBP 120/week. If one parent is unemployed, a student, or disabled, special rules may apply.
• Income withdrawal: If either parent earns over GBP 100,000, the GBP 20 uplift is lost (withdrawn at GBP 1 per GBP 100 of income over GBP 100k).
• Registered childcare only: Nurseries, childminders, out-of-school clubs -- not relatives or informal arrangements.

For Childcare Vouchers:

• Closed scheme: You must have already been enrolled before October 2018. New enrollees cannot join.
• Registered childcare: Same as TFC.
• Employer must offer it: Your employer must participate in a voucher scheme.
• Salary sacrifice: Your salary is reduced by the voucher amount for pension and student loan calculation purposes (which can sometimes reduce your pension contributions or loan repayments).

Real-World Calculation: Two Children, Both Schemes

Suppose Sarah earns GBP 50,000 and has two children needing childcare. She's a higher-rate taxpayer (40% income tax + 8% NI = 48% combined rate). She has access to childcare vouchers.

Using childcare vouchers for both children:

• Childcare voucher allowance: GBP 243/week × 52 weeks = GBP 12,636/year
• Tax and NI saving: GBP 12,636 × 48% = GBP 6,065
• Net cost of childcare: Actual childcare cost minus GBP 6,065

Scenario: Childcare costs GBP 15,000/year total:

• With vouchers: GBP 15,000 - GBP 6,065 = GBP 8,935 net cost
• Without any scheme: GBP 15,000 net cost
• Annual saving: GBP 6,065

The Phase-Out Issue

An important consideration: the TFC scheme requires both parents to be "in gainful employment." If one parent reduces hours or stops work, you may lose TFC eligibility. This is sometimes a trap: a parent contemplating leaving work to look after children might lose GBP 2,000/year in TFC credit, which could be factored into the financial decision.

What About Employer Contributions?

Some employers offer additional childcare support beyond vouchers, such as:

• Subsidised nursery places (a form of benefit-in-kind, with tax relief).
• Childcare cost reimbursement (usually not tax-efficient unless structured as salary sacrifice).
• Partnerships with childcare providers (discounted rates via the employer).

If your employer offers these, calculate the combined value with either TFC or vouchers.

Key Takeaways

• Childcare vouchers are almost always better than TFC, saving up to GBP 6,065/year for a higher-rate taxpayer (vs. GBP 2,000 max with TFC).
• Childcare vouchers are closed to new joiners (as of October 2018) -- only legacy users can access them.
• TFC is the only option for most small-employer employees, but it saves less (GBP 2,000/year maximum).
• Income-limited: TFC is unavailable if either parent earns over GBP 100,000.
• Choose one or the other -- you can't use both schemes for the same child simultaneously.
• TFC age limit increases: Now from age 11 months to 14 years (rising to 17 by 2027).

If you're in a childcare voucher scheme, stay in it. If you're not, use TFC. And if you're deciding between them (e.g., changing jobs), calculate the actual saving for your circumstances.

Use our

to see the impact of childcare support on your net income and plan your childcare budget accordingly.