Tax Free Childcare
A Parents Guide
You will be able to open an online account which allows you to pay into it to cover the cost of childcare with a registered provider; this will be done through the government website, GOV.UK
For every 80p you or someone else pays in, the government will top up an extra 20p which is equivalent to the tax most people pay - 20% - which is where the scheme gets its name, tax-free. The government will top up the account with 20% of childcare costs up to a total of £10,000 which is the equivalent of up to £2,000 support per child, per year.
The scheme will be available for children under 12 and will also be available for children with disabilities under the age of 17; this is because their childcare costs can stay high throughout the teenage years.
In order to qualify for this scheme, parents will have to be in work and each earning at least £120 a week and not more than £100,000 each per year.
The tax free childcare scheme doesn't rely on employers offering it, unlike the current scheme Employer-Supported childcare. This means any eligible working family can use tax free childcare.
Unlike the current Employer-Supported Childcare scheme, parents who are self-employed will be able to get support with childcare costs in the tax free scheme. To support parents who are newly self-employed, the government is introducing a start-up period and during this, self-employed parents won't have to earn the minimum income level.
This scheme will also be available for parents who are on paid sick leave and unpaid statutory maternity, paternity and adoption leave.
If you currently receive Employer-Supported Childcare and don't want to switch to the tax free childcare scheme, this is fine as the Employer-Supported Childcare scheme will continue to run. The current scheme will remain open to new entrants until April 2018 and parents already registered will be able to continue using it for as long as their employer offers it.
For flexibility you don't have to pay in a set amount of money to the childcare account each month. Some months you can pay in more and others you can pay in less meaning you can build up a balance in your account to use at times where you may need more childcare than usual. It's also not just parents who can pay money into the childcare account - if grandparents, other family members or employers want to pay in then they can.
This process will be as simple as possible for parents; you will only have to re-confirm your circumstances every 3 months through a simple online process. There is also a simple log-in service which allows parents to view accounts for all their children at once.
If your circumstances change or you no longer want to pay into the account you will be able to withdraw the money you have already built up in it. However, if you do this then the government will withdraw its corresponding contribution.
If you believe you are eligible for tax free childcare and want to apply, you can click here to do so.
If you pay for childcare, using childcare vouchers saves many parents £1,000 a year in tax. These vouchers – available via a special Government scheme and operated through employers – allow you to pay for childcare from your PRE-TAX salary.
How many vouchers can you buy?
Basic-rate taxpayers can pay for up to £243 of childcare with vouchers each month (£55/week). This is PER PARENT, so two working parents could get £486 of vouchers each month. (This also applies to higher/top-rate payers who joined before 5 April 2011, as long as they don’t take a break from the childcare voucher scheme of more than 12 months.)
On 6 April 2011, new joiners paying higher or top-rate tax had their allowance cut so all taxpayers have roughly the same maximum tax saving. The limits in terms of vouchers you can buy are:
The number of children you have doesn’t affect this, so the limits are the same whether you’ve one child or an entire Brady Bunch. So, if you can’t meet your entire childcare cost using the vouchers, you will have to pay the childminder directly for the rest.
Vouchers tend to last for a long time, so if you know you’re going to have higher childcare costs during the holidays, collect vouchers in advance. Beware! Vouchers are usually non-refundable, so don’t collect more than you can use.
What if your employer doesn’t offer a scheme?
Providing childcare vouchers shouldn’t cost your employer any money. In fact, as they don’t pay national insurance (NI) on the portion of tax you use for vouchers, it actually reduces their costs! So try to persuade them. You could chat to other parents and go as a group to request the facility.
Firms can offer voucher schemes in one of two ways, either by operating the scheme themselves or by using one of the many voucher companies to do all the admin for them. The fee for this should be less than the firm gains in NI, so they’ll still profit.
From 4 October 2018, childcare vouchers are closed to new entrants. For more information, please visit Gov.uk