NEWS

The New Tax-Free Childcare Scheme

The government has introduced a new tax-free childcare scheme which gives eligible families an extra 20% towards childcare costs.  With the commencement of the roll-out from 28 April 2017, it is planned the tax free benefit will be available to all parents by the end of this year.

The new initiative will replace the existing Childcare Vouchers scheme, which will close to new entrants in April 2018.  Unlike childcare vouchers, the new scheme is not reliant on employers offering it to parents.  This is good news if you work for a company that doesn’t offer the childcare voucher system.  It is also available to those who are self-employed.

To be eligible you must be working (and if you have a partner, they must work too) and you must not be receiving support through Tax Credits or Universal Credit.  If you are temporarily absent from the workplace, such as on paid or unpaid maternity, paternity or adoption leave, you will still be eligible. 

Also, if you work but your partner is unable to work because they are disabled or care for a disabled person, you will be able to use the tax-free childcare scheme.  It will not be available to parents where either a single parent or either member of a couple earns over £100,000 per annum.

Under the new rules the government will contribute 20p for every 80p that parents spend on childcare so it effectively gives the basic-rate tax back, hence the scheme’s name.  In total, eligible families will be able to use the scheme to pay for childcare of up to £10,000 per child each year.  This means they will get an extra £2,000 per child each year (or £4,000 if the child is disabled). The scheme covers children up to the age of 12 (or 17 for children with disabilities). 

Letters were sent out to more than 100,000 registered UK childcare providers in September and October 2016 asking them to sign up.  You will only be able to use tax-free childcare if your child’s childcare provider has registered.

In order to apply for the scheme you must open an online account provided by National Savings and Investments (NS&I) which is available through the government’s website: www.gov.uk.  You may open one account per child.  Once set up you will be able to transfer money from your bank as you would to any other ‘savings’ account.  This is then topped up by the government.  Parents will be required to confirm their eligibility every quarter in order to qualify for the top-up.

You can save more than the tax-free amount of £8,000 but any extra will not earn a top-up. You will be able to pay in more some months, and less in other months, in order to build up a balance in your accounts to cover times when you might need more childcare than usual, for instance in the school holidays. Grandparents and other family members and employers will also be able to pay into the account.

As well as signing up to tax-free childcare through your digital account, you will also be able to sign up for your additional free childcare hours.  Working parents of three- and four-year olds currently get 15 hours of free childcare, but from September 2017 this increases to 30.

If you already use the existing childcare vouchers scheme you will be able to continue using this if you wish.  However you will not be able to use both childcare vouchers and tax-free childcare.  The government proposes to close the childcare voucher scheme to new claimants after tax-free childcare comes in.  If you use a workplace nursery and get tax relief on the costs of childcare there, this won’t change.

If you would like further advice about the new scheme or help in identifying other areas where you could save tax, please contact Martin Southern at Morris Crocker Chartered Accountants on tel 023 9248 4356 or email mjs@morriscrocker.co.uk

25/04/2017