The government’s new Tax-Free Childcare scheme is currently being rolled out, starting with parents of the youngest children.
The scheme, which is intended to help parents with the cost of childcare, is worth a maximum of £2,000 per child (£4,000 for a disabled child). Tax relief of up to 20% is available for childcare costs, up to a total of £10,000. Children aged under 12 are eligible for the scheme, as well as disabled children aged up to 17.
Eligible parents are required to open an online account, into which they can contribute money towards the cost of childcare. The government will then ‘top up’ these payments at a rate of 20p for every 80p contributed by parents or family members.
To qualify for Tax-Free Childcare, all parents in a household must meet a minimum income level based on working 16 hours per week at the National Living Wage and earn no more than £100,000 each per year. Parents should not already be receiving support through Tax Credits or Universal Credit.
Unlike the current Employer-Supported Childcare scheme, self-employed parents will be able to benefit from Tax-Free Childcare. To support newly self-employed parents, the government is introducing a ‘start-up’ period, during which time a newly self-employed parent will not have to earn the minimum income level.
All eligible parents will be able to apply for Tax-Free Childcare by the end of 2017.
The existing Employer-Supported Childcare scheme will remain open to new entrants until April 2018. Those who already benefit from this scheme can choose to remain in this system, assuming their employer continues to offer it, or they can switch to Tax-Free Childcare.