Comparison · 2026/27

Childcare Vouchers vs Tax-Free Childcare: Legacy Salary-Sacrifice vs Current 20% Government Top-Up Compared for 2026/27

The UK government's childcare support landscape has two main employer/parent schemes: the legacy Childcare Vouchers scheme (closed to new entrants 4 October 2018 but grandfathered indefinitely for existing scheme members) and the current Tax-Free Childcare (TFC) scheme that replaced it. Vouchers operate as a SALARY SACRIFICE arrangement — employees give up part of their gross salary in exchange for childcare vouchers, saving income tax and employees National Insurance at marginal rate. Tax-Free Childcare operates as a direct government TOP-UP — for every £8 you deposit, the government adds £2 (20%), up to £2,000/year per child (£4,000 for disabled children). The two schemes are mutually exclusive: opting into TFC permanently terminates Voucher eligibility. For most UK families in 2026/27 with both parents working and incomes below the £100,000 cliff edge, TFC produces materially higher savings than Vouchers — often £2,000-£4,000/year more for multi- child families. Vouchers retain a niche value where one parent earns over £100k (disqualifying TFC) and the other has grandfathered Voucher access. This comparison covers eligibility, calculation mechanics, the £100k cliff edge and its taper-zone implications, simultaneous compatibility with Universal Credit childcare element (85% of cost up to monthly caps) and 30-hours- free childcare (the highest-value separate scheme), and worked £900/month examples showing the typical net advantage of TFC over Vouchers in 2026/27.

Last updated: 24 May 2026Last reviewed: 24 May 2026How we verify

At a Glance

Feature	Childcare Vouchers (legacy)	Tax-Free Childcare (current)
Status	Closed to new entrants 4 Oct 2018; grandfathered for existing	Open scheme; nationally rolled out 2018
Mechanism	Salary sacrifice — gives up gross pay for vouchers	Government top-up — pays 20% on parent deposits
Basic-rate parent cap	£243/month = £2,916/year sacrifice	£2,000/year top-up per child
Higher-rate post-2011 cap	£124/month = £1,488/year	Same £2,000 if under £100k
Additional-rate post-2011	£110/month = £1,320/year	Disqualified (over £100k)
Disabled child cap	Same as above per parent	£4,000/year top-up per child
Per-child or per-parent?	Per-parent (each parent can sacrifice up to cap)	Per-child (£2,000 per child stacks)
Income limit	None; higher-rate cap is lower from 2011	Either parent over £100k disqualifies family
Work requirement	Employed (must be employee)	Both parents 16hr/wk at NMW; self-employed eligible
Age limit	Child under 16	Child under 12 (16 if disabled)
Self-employed	Not eligible (employees only)	Eligible if meeting income/work tests
Provider eligibility	Ofsted-registered	Registered with TFC scheme (Ofsted plus TFC sign-up)

How Childcare Vouchers Work

Childcare Vouchers operate as a salary-sacrifice arrangement. Employees agree to give up part of their gross salary in exchange for childcare vouchers of equivalent face value, which can be used to pay an Ofsted-registered childcare provider. The salary sacrifice reduces gross taxable pay, saving income tax at marginal rate (20% basic, 40% higher, 45% additional) AND employees National Insurance (8% on £12,571-£50,270, 2% above) AND in many cases employers NI (which the employer often shares back to employees as enhanced voucher value).

Worked saving for a basic-rate parent. £243/month sacrifice = £2,916/year. Income tax saved: £2,916 × 20% = £583. Employees NI saved: £2,916 × 8% = £233. Total saved: £816/year, equivalent to ~28% effective discount on the vouchers used.

Worked saving for a post-2011 higher-rate parent. £124/month sacrifice = £1,488/year. Income tax saved: £1,488 × 40% = £595. Employees NI saved (above PT, 2% rate): £1,488 × 2% = £30. Total saved: £625/year. The post-2011 cap was reduced specifically to cap the relief value at approximately £625-£625 across all bands, equalising the absolute saving across income bands as a policy choice. Pre-2011 higher-rate scheme members retained the £243 cap and consequently get £1,488 × 40% + 2% NI = £626 — similar outcome by accident.

Both parents in a couple can each sacrifice up to their own cap if both employers offer Vouchers — doubling the household saving. For a typical basic-rate couple where both have grandfathered access: 2 × £816 = £1,634/year saving.

How Tax-Free Childcare Works

Tax-Free Childcare is a government top-up scheme administered by HMRC via the gov.uk Childcare Service. For every £8 you deposit into your TFC online account, the government adds £2 — a 20% top-up. Maximum government top-up is £2,000/year per child (£4,000 for disabled children), achieved by depositing £8,000/ year per child (£16,000 disabled). You then pay your registered childcare provider directly from the TFC online account.

Eligibility (each parent must satisfy):

Working at least 16 hours/week at National Minimum Wage or higher (£195/week minimum for over-21s in 2025/26)
Earning under £100,000/year (adjusted-net-income basis)
UK resident with right to work
Child under 12 years old (16 if disabled)
Childcare provider registered with the TFC scheme
Re-confirmation every 3 months via gov.uk Childcare Service

Self-employed parents ARE eligible if they meet the income and work tests (unlike Vouchers which require employee status). New self-employed parents have a 12-month start-up exemption where they need not meet the minimum income test, recognising that new businesses may have low income initially.

The £100,000 Cliff Edge

The single most consequential feature of Tax-Free Childcare is the £100,000 adjusted-net-income cliff edge that applies to EACH parent independently. If EITHER parent earns over £100,000/year, the WHOLE family loses TFC eligibility — even if the other parent earns nothing. The cliff edge is binary: at £99,999 the family qualifies fully; at £100,001 the family loses entirely.

This combines with the personal-allowance taper (lost £1 for every £2 of adjusted-net-income over £100,000) to produce extreme marginal effective tax rates around £100k. A parent at £100,001 earning an additional £1 may face: 40% income tax + 2% NI + loss of £6,000/year of TFC + 30-hours-free per child + £2,514 of personal allowance tapering away. For a family with 2 nursery-age children, the marginal effective tax rate at £100k can exceed 130% — a single extra pound of gross income makes the family materially worse off.

Mitigations. Pension contributions (personal SIPP or workplace via salary sacrifice) reduce adjusted-net-income. A parent on £105,000 who makes a £5,000 personal pension contribution brings their ANI to £100,000 and restores TFC + 30-hours-free + personal allowance. For a basic-rate-band-after-tapering analysis, the effective government "match" on this pension contribution can exceed 100% — the most tax-efficient pension contribution available in the UK personal tax code.

The £100k threshold has not been uprated since TFC's 2017 introduction. Fiscal drag (wage inflation pushing more parents over the static threshold) has expanded the population affected each year. Repeated parliamentary committee criticism and campaign-group lobbying have not yet produced threshold reform. Budget 2024 announced no change; Budget 2025 announced no change. The static threshold remains a major design flaw and the largest single planning consideration in the Vouchers vs TFC choice for high-earning households.

UC Childcare Element Interaction

Universal Credit has its own childcare element that covers 85% of registered childcare costs up to monthly caps (raised June 2023): £1,015/month for one child, £1,739/month for two or more children. The 85% rate is paid in arrears — you pay the childcare provider first, then claim back via UC; this creates upfront cash-flow demand.

UC childcare CANNOT be combined with TFC or Vouchers — they are mutually exclusive. For most UC claimants, the 85% UC childcare rate exceeds the 20% TFC top-up, so UC childcare is normally the higher-value option (assuming you are eligible for UC at all). If you receive UC, you receive UC childcare automatically as part of the UC claim.

The interplay is determined by current claimant status, not by choice — if you receive UC, TFC is excluded. Stopping UC means losing UC childcare; then TFC or Vouchers become options again. Many families approach a transition zone where income rises just above UC eligibility — at this point switching to TFC becomes necessary, and the comparison vs Vouchers depends on family structure as discussed below.

30-Hours-Free Stacking

30-hours-free childcare is a SEPARATE scheme from Vouchers and TFC, and can be STACKED with either (but not with UC childcare). It provides 30 hours/week (38 weeks/year, school terms) of FREE government-funded childcare for 3-4 year olds. The major September 2025 expansion extended 30-hours-free to children from 9 months onwards, dramatically increasing the value of the scheme for families with younger children.

Eligibility for 30-hours-free is identical to TFC: both parents working at least 16 hours/week at NMW, each parent under £100,000/year. The same £100k cliff edge applies.

Value of 30-hours-free. At typical UK nursery rates of £6-£8/hour, 30 hours/week × 38 weeks = 1,140 hours/year × £7 = ~£8,000/year of free childcare per eligible child. This is by far the highest- value single childcare support scheme. Combined with TFC for the residual hours and holiday weeks, total state support per child can reach £10,000-£12,000/year. Applications via the same gov.uk Childcare Service portal as TFC.

Worked £900/Month Childcare Example

Family scenario: 1 child age 5 (just past 30-hours-free age band), £900/month childcare cost = £10,800/year (after-school care + some holiday clubs). Parent A £45,000 basic-rate, Parent B £35,000 basic-rate. Combined income £80,000, well under £100k cliff edge, both eligible for TFC.

VOUCHERS (if both parents have grandfathered access):

Parent A sacrifices £243/month × 12 = £2,916/year. Saves £2,916 × (20% IT + 8% NI) = £817.
Parent B sacrifices £243/month × 12 = £2,916/year. Saves £2,916 × 28% = £817.
Combined Voucher value sacrificed: £5,832/year (used to pay childcare).
Combined household saving: £1,634/year.
Out-of-pocket: £10,800 - £5,832 (Vouchers used) - £1,634 saved on what was sacrificed = effective net cost ~£9,166.

TAX-FREE CHILDCARE:

Family pays £900/month into TFC account. Top-up: 20% of each £8 deposit, capped at £2,000/year top-up per child.
To get full £2,000 top-up: deposit £8,000/year. They deposit the full £10,800 cost into TFC account; first £8,000 attracts £2,000 top-up; remaining £2,800 paid in without top-up (cap reached).
Out-of-pocket: £10,800 - £2,000 top-up = effective net cost £8,800.

WINNER: TFC by £366/year (£8,800 net cost vs Vouchers £9,166). TFC also has the advantage of being open to all families with parents under £100k — Vouchers require both parents to have grandfathered access, which becomes less common each year as people switch jobs.

Scenarios where Vouchers would win the same family example: only ONE parent has grandfathered Voucher access (single-parent saving), OR childcare cost is much lower (e.g., £400/month £4,800/ year), where the £2,000 TFC cap is hit at lower levels but Vouchers can still save proportionally. Scenarios where TFC wins by larger margins: 2+ children (each gets own £2,000 cap), higher cost childcare (TFC scales to £8,000/year deposit per child).

Which to Choose

Strategic recommendation for 2025/26:

Both parents under £100k — Tax-Free Childcare is almost always better than Vouchers, especially with multiple children. Switch from Vouchers if not already on TFC. Use the gov.uk Childcare Choices calculator to confirm.
One parent over £100k — Family loses TFC eligibility entirely. Use Vouchers if grandfathered access available. Consider pension salary sacrifice to bring ANI under £100k — restores TFC + 30-hours-free + personal allowance and often produces >100% effective government match on the pension contribution.
Universal Credit claimant — UC childcare element (85% of cost up to caps) is the default. Cannot combine with TFC or Vouchers.
Child aged 9 months to 4 years — 30-hours-free is by far the highest-value scheme; eligibility same as TFC. Apply for both simultaneously.
School-age child (over 4) — TFC for wraparound and holiday care, capped at £2,000/year per child.
Self-employed parent — TFC is the only option (Vouchers require employee status). UC childcare also available if total household income low enough.

Always model your specific position using the official MoneyHelper Childcare Choices calculator at childcarechoices.gov.uk before committing. The switching decision from Vouchers to TFC is ONE-WAY — Vouchers cannot be restarted after opting into TFC, so careful modelling first is essential.

Frequently Asked Questions

Are Childcare Vouchers still available?

NO — Childcare Vouchers closed to NEW entrants on 4 October 2018. Anyone who joined a Childcare Voucher scheme before that date and has stayed continuously in the same employer's scheme is "grandfathered" — they can continue receiving Vouchers indefinitely, as long as their employer still offers the scheme and they have not had a break of more than 12 months. Switching employer breaks the grandfathered status; the new employer cannot offer Vouchers because the scheme is closed to new joiners across the UK. The closure was announced by the Conservative government in 2017 alongside the introduction of Tax-Free Childcare as a replacement. The grandfathering provision was a political compromise to avoid disrupting existing users. As of 2025/26 the number of remaining Voucher users is steadily declining as people change jobs, retire, or have children grow out of childcare age — estimated 200,000-400,000 active users remaining, down from a peak of ~700,000.

What is Tax-Free Childcare?

Tax-Free Childcare (TFC) is the current UK government childcare support scheme, in force since 2017 (national rollout completed 2018). For every £8 you deposit into your TFC online account, the government adds £2 — a 20% top-up. Maximum £2,000 per year per child (£4,000 for disabled children). Annual deposits up to £8,000 per child (£16,000 disabled). You then pay your registered childcare provider directly from the TFC account. Eligibility: both parents must work at least 16 hours/week at National Minimum Wage or higher (£195/week for over-21s in 2025/26), and each parent must earn under £100,000/year. Available for children up to age 11 (16 for disabled). Re-confirmation every 3 months online. Scheme administered by HMRC via gov.uk/tax-free-childcare. About 1.0-1.2 million families now use TFC, much higher than the original 2017 forecast adoption rate.

What are the Childcare Voucher caps?

Childcare Voucher tax-free salary-sacrifice caps depend on when you joined and your income tax band: basic-rate (20%) taxpayers — £243/month (£55/week), £2,916/year. Higher-rate (40%) taxpayers who joined the scheme after 6 April 2011 — £124/month (£28/week), £1,488/year. Additional-rate (45%) taxpayers who joined after 6 April 2011 — £110/month (£25/week), £1,320/year. Existing higher-rate scheme members BEFORE 6 April 2011 kept the basic-rate £243/month cap. The salary sacrifice saves: income tax at marginal rate (20%/40%/45%) PLUS employees NI (8% in 2025/26 basic-rate band, 2% above). For a basic-rate taxpayer, £2,916/year sacrificed saves £2,916 × (20% + 8%) = £817/year. For a post-2011 higher-rate taxpayer, £1,488 × (40% + 2%) = £625/year. Both parents in a couple can each sacrifice up to their own cap independently if both employers offer Vouchers — doubling the saving on combined sacrifice.

Show 7 more questions

What is the £100,000 cliff edge for TFC?

Tax-Free Childcare eligibility has a strict £100,000 adjusted-net-income cliff edge that applies to EACH parent independently. If EITHER parent earns over £100,000/year, the WHOLE family loses TFC eligibility — even if the other parent earns nothing. The cliff edge is binary: at £99,999 the family qualifies fully for TFC; at £100,001 the family loses TFC entirely. This is one of the most criticised design flaws of TFC, producing extreme marginal tax rates around the £100k threshold. Combined with the personal-allowance tapering (lost £1 for every £2 over £100k income), a parent at £100k can face an effective marginal rate of 60%+ income tax + 2% NI + loss of TFC worth £2,000-£4,000 per child + loss of 30-hours-free worth ~£6,000/year per child in nursery age. Pension contributions or salary sacrifice can bring adjusted-net-income below £100k and restore TFC + 30-hours-free eligibility — a major tax-planning move for parents earning £100-110k. The £100k threshold has not been uprated for inflation since TFC's 2017 introduction, so fiscal drag pulls more families above it each year.

Can I have both Vouchers and TFC?

NO. The two schemes are mutually exclusive. If you opt into TFC, your existing Childcare Voucher membership is automatically terminated and cannot be restarted (the Voucher scheme is closed to new entrants, including former participants). Switching is therefore a ONE-WAY decision. Important practical tip: before opting into TFC, model the savings under both schemes. For many families on basic-rate income, Vouchers under salary sacrifice produces savings of about £930/year per parent for £2,916 sacrifice (20% IT + 8% NI + employer NI rebate). TFC produces up to £2,000/year per child. For 1 child + basic-rate single-earner couple, Vouchers may give £930-£1,200 (one or both parents) and TFC gives up to £2,000 — TFC usually wins. For 2 children, TFC gives up to £4,000 — TFC clearly wins. For 1 child + high-earner couple where one parent is over £100k, Vouchers may be the only option (TFC disqualified). Always model both before switching; the decision is irreversible.

What is the UC childcare element?

Universal Credit has a separate childcare element that covers 85% of registered childcare costs up to monthly caps. The cap was raised significantly in June 2023: £1,015/month for one child (up from £646), £1,739/month for two or more children (up from £1,108). The 85% rate applies up to those caps; costs above the caps are paid in full by the parent. The UC childcare element is paid IN ARREARS — you pay the childcare provider first, then claim back via Universal Credit; this creates upfront cash-flow demand that many UC claimants struggle with. UC childcare CANNOT be combined with TFC or Vouchers — they are mutually exclusive. For most UC claimants the UC childcare element gives a higher benefit than TFC (85% vs effectively 20%), so UC childcare is normally the right choice. The interplay is determined by your current claimant status, not by choice — if you receive UC, you receive UC childcare. Stopping UC means losing UC childcare; then TFC or Vouchers become options again.

How does 30-hours-free childcare interact?

30-hours-free childcare is a SEPARATE scheme from Vouchers and TFC — you can stack 30-hours-free with EITHER Vouchers or TFC, but not with UC childcare. 30-hours-free provides 30 hours per week (38 weeks/year, school terms only) of FREE government-funded childcare for 3-4 year olds (with a planned major expansion to 9-month-olds completed by September 2025). Eligibility: both parents working at least 16 hours/week at NMW, and each parent under £100,000/year — same eligibility as TFC. Children in eligible age bands can receive 30 hours/week at participating nurseries, childminders, or preschools free of charge. Parents pay only for childcare beyond the 30 hours (e.g., the 15th hour of a 45-hour-week nursery placement, or holiday weeks outside school terms). 30-hours-free is approximately £6,000-£8,000/year in equivalent value per child — by far the most valuable single childcare support scheme. Combined with TFC for the residual hours, total state support per child can reach £10,000-£12,000/year. Apply via the same gov.uk Childcare Service login as TFC.

When are Childcare Vouchers still better than TFC?

Vouchers remain the better option in three specific scenarios in 2025/26: (1) ONE PARENT OVER £100K — TFC is disqualified for the whole family; if the other parent has grandfathered Voucher access, Vouchers provide some saving (£1,488-£2,916/year sacrificed, ~£625-£817 tax/NI saving). (2) SINGLE CHILD + MODEST CHILDCARE COST — for childcare under £200/month, the per-child TFC cap of £2,000/year may be more than you actually spend, while Voucher savings scale linearly with sacrifice. (3) EMPLOYER WITHOUT REGISTERED CHILDCARE PROVIDER — TFC requires the childcare provider to be registered with the scheme; some informal arrangements (e.g., paying a relative) do not qualify for TFC but might qualify for Vouchers if the relative is OFSTED-registered. In all other typical scenarios — 2 parents both under £100k, multiple children, mid-to-high childcare spending — TFC produces equal or greater savings than Vouchers, often substantially greater. The £100k cliff edge is the single most important factor in the comparison.

Worked £900/month example

Family scenario: 1 child, £900/month childcare cost (£10,800/year), basic-rate couple, Parent A £45,000/year, Parent B £35,000/year. Combined income £80,000, well under £100k cliff. VOUCHERS (if grandfathered access). Parent A sacrifices £243/month = £2,916/year, saving 20% IT + 8% NI = £817/year. Parent B sacrifices £243/month = £2,916/year, saving 20% IT + 8% NI = £817/year. Combined saving: £1,634/year. But the £2,916 × 2 = £5,832 sacrifice is less than £10,800 childcare cost, so they still pay £4,968 net out of pocket. TAX-FREE CHILDCARE. Family pays £900/month × 12 = £10,800/year. TFC top-up: 20% on each £8 deposit, max £2,000/year per child. £8,000 deposit → £2,000 top-up. Plus £2,800 additional out of pocket. Net saving on £10,800: £2,000/year. WINNER: TFC saves £2,000/year vs Vouchers £1,634/year. TFC wins by £366/year for this family. The TFC advantage grows with multiple children (£2,000 cap per child stacks), shrinks for single-child low-cost childcare, and reverses entirely if either parent is over £100k.

How do I switch from Vouchers to TFC?

Switching from Childcare Vouchers to Tax-Free Childcare is a ONE-WAY decision: once you opt into TFC you cannot return to Vouchers because Vouchers are closed to new entrants (including former participants). To switch: (1) Model the savings under both schemes carefully using your specific family income, number of children, and actual childcare costs. (2) Apply for TFC via the gov.uk Childcare Service portal at gov.uk/apply-tax-free-childcare. The application includes a question confirming you understand it terminates Voucher eligibility. (3) Open a TFC account for each child. (4) Notify your employer to stop salary-sacrificing into the Voucher scheme — they will adjust your payroll. (5) Set up payments to childcare provider from the TFC account. The whole switching process typically takes 2-4 weeks. Important: re-confirm TFC eligibility every 3 months via the gov.uk Childcare Service; missing a re-confirmation can suspend the top-up payments temporarily. Use the official MoneyHelper Childcare Choices calculator at childcarechoices.gov.uk to model your specific position before committing.

Official References

Run the Numbers

Tax-Free Childcare

20% top-up estimate

Take-Home Pay

After IT + NI net pay

Salary Sacrifice

Voucher / pension sacrifice

Universal Credit

UC entitlement estimate

About the author

Emma Clarke

UK Tax Writer

Emma Clarke has been writing about UK personal tax since 2018, with a particular focus on Self Assessment, PAYE coding and the practical mechanics of how HMRC actually applies the rules to ordinary salaries. Her work concentrates on translating the dense language of HMRC manuals and Finance Act schedules into worked examples that show, pound by pound, how income tax and National Insurance reduce a gross salary to the figure that lands in a UK bank account. Emma covers the full PAYE lifecycle: tax codes (1257L, BR, K codes, emergency codes), the Marriage Allowance, the High Income Child Benefit Charge, salary sacrifice arrangements and their effect on pensionable pay, the Apprenticeship Levy, and the differences between the rUK and Scottish income-tax regimes. She is particularly interested in the edge cases that catch PAYE employees out — the £100,000 personal-allowance taper, the 60% effective marginal rate it creates, and the interaction between student-loan plans and pension contributions. Every figure in Emma's articles is verified against the current HMRC rates pages and worked through a Self Assessment calculation by hand before publication. She writes to CalcHub's editorial standards: primary-source citations, plain English, no promotional language, and clear "this is general information, not financial advice" disclaimers where appropriate.

Personal-finance writer since 2018
UK tax specialism — PAYE, Self Assessment, National Insurance
Writes to CalcHub editorial standards (primary-source citation, annual review)

income-taxself-assessmentpayenational-insurancetax-codessalary-sacrificestudent-loansscottish-income-tax

Disclaimer: Childcare scheme rules, caps and the £100k cliff edge reflect 2025/26 legislation as of May 2026. Switching from Vouchers to TFC is irreversible — model carefully before committing. See childcarechoices.gov.uk for the official government calculator.