How do daycare vouchers work? In the UK, they used to help parents save money on childcare through their employer. These vouchers let parents pay for care from their pre-tax income. That meant big savings each month. While the scheme closed to new users in 2018, many still use it today. Our guide here breaks it down, step by step.
Step 1: Understand What Daycare Vouchers Are
Daycare vouchers were a workplace benefit. You gave up part of your salary, and your employer used that amount to buy vouchers. You then used those vouchers to pay your child care provider. Because the money came out before tax, you paid less tax overall. This gave families up to £933 in yearly savings. Think of it like a discount on care, backed by the government.
Step 2: Check If You Still Qualify for Daycare Vouchers
You can only use vouchers if you joined the scheme before 4 October 2018. You also need to still work for the same employer. If you switched jobs, you lost access. Your child must be under 15—or under 16 if they have a disability. The care must be with a registered provider. No new sign-ups are allowed. If you’re new to the system, you’ll need to look at other options.
Step 3: Know the Limits for Daycare Vouchers
Basic-rate taxpayers could use up to £243 per month in vouchers. Higher-rate taxpayers had lower caps—£124 or £97, based on when they joined. These limits applied per parent. Two working parents could double the benefit. The setup reduced income tax and National Insurance. It made a real difference to family budgets.
Step 4: Understand What Providers Accept Vouchers
Only registered child care providers can take vouchers. That includes nurseries, childminders, playgroups, and wraparound clubs. Some registered nannies may also qualify. You cannot use vouchers to pay friends or relatives. Payments go directly to the provider—never through your bank account. Make sure the provider accepts vouchers before you commit.
Step 5: Consider Tax-Free Childcare if You’re Not Eligible
If you missed the voucher deadline, don’t worry. Tax-Free Childcare replaced vouchers for new users. You open an online account, add money, and the government tops it up. For every £8 you pay in, they add £2. That’s up to £2,000 per year per child, or £4,000 if your child has a disability. This works well for self-employed parents, too. It’s flexible and works across job changes.
Step 6: Compare Vouchers with Tax-Free Childcare
Vouchers worked best for people in stable, full-time jobs with steady employers. Tax-Free Childcare works better for modern work patterns. Freelancers, part-time staff, and those who move jobs benefit more. One downside: once you leave vouchers, you can’t return. Run the numbers and choose carefully. Many families switch, but only if it saves more.
Step 7: Apply for Tax-Free Childcare if You Qualify
Go to the GOV.UK website and set up your account. You must earn over £152 a week and under £100,000 a year. Your child must be under 12—or under 17 with a disability. Add money to your account and use it to pay approved providers. The government will handle the top-up.
Step 8: Know What Counts as Registered Child Care
Approved providers include nurseries, childminders, pre-schools, and some after-school clubs. They must register with Ofsted or another official body. You can’t claim for unregistered care. That includes babysitting by family or friends. Check their status before paying. Only registered care qualifies for savings.
Step 9: Keep Using Vouchers If You Already Have Them
If you’re already in the scheme and it works for you, keep going. There’s no need to switch unless you lose access or your care costs rise. Check your monthly savings and compare them with Tax-Free Childcare. If you change employers, your voucher rights end. That’s when it’s time to switch over.
Step 10: Use Every Bit of Support Available
You might also qualify for free child care hours—15 to 30 hours a week for 3- and 4-year-olds. Some 2-year-olds also qualify. If you’re on Universal Credit, you can claim back 85% of child care costs. Many councils also offer grants, short breaks, or extra support. Stack the support. It all adds up.
Step 11: Understand the Big Picture
Daycare vouchers helped families save money and stay in work. They worked for years. But jobs and family life have changed. We now need tools that fit today’s needs. Tax-Free Childcare is the main option going forward. It’s easier to access, flexible, and not tied to your job.
Step 12: Stay Informed About Daycare Support in 2025
In 2025, daycare vouchers still help families who joined before 2018. But most new parents now use Tax-Free Childcare. Both systems sit side by side. One is slowly phasing out. The other is growing to meet modern family needs. Choose what works best for your situation. Don’t leave money on the table.
Final Thoughts: How Do Daycare Vouchers Work in Real Life?
They work like tax-friendly money for care. You save on taxes. You pay your provider directly. The catch? You had to act before 2018. If you didn’t, your best move is Tax-Free Childcare. Both help lower your bills and keep you working. Both support your child’s early years.
Learn how to get the most from child care support. Enrol now in our online Child Care Courses at Unified Course. Stay ahead. Start today.
