The Tax-Free Childcare scheme, recently launched by the government, will top up the amount eligible parents spend on childcare by 25% to a maximum contribution of £2000 per child.
Who is eligible?
The Tax-Free Childcare scheme should benefit many self-employed parents as well as employees who do not have the benefit of an Employer Provided Childcare scheme.
To qualify for Tax-Free Childcare, parents need to be ‘working parents’ who pay ‘registered childcare’ for children under 12 (or under 17 for disabled children). Where parents don’t live together, the qualifying parent is usually the one with whom the child usually lives.
The main qualification criteria are that a parent (and partner if applicable) should be:
- Earning on average at least £120 a week
- Earning less than £100,000 a year
- Not in receipt of other childcare support such as Child Tax Credits.
Where the parent is self-employed, income can be averaged across the year to prove the minimum income requirement.
It may also be attractive to those who are currently in an Employer Provided Childcare scheme but making a decision as to what is best may be difficult for a number of parents.
Here’s how it works for you
The government’s Childcare Choices website will guide you through the different ways you can – or will be able to – get help.
If your child or children are currently under four, or have a disability, you can apply through the Childcare Choices site now, and will be able to apply for all your children at the same time, when your youngest child becomes eligible.
If you don’t meet these criteria, you can register to be notified by the government about when they will be able to apply. All eligible parents will be able to join the scheme by the end of 2017.
When you are eligible, you will be able to open an account at the website, where you pay in the money you plan to spend on childcare. The government will then top up your account with an extra 25% to a maximum of £2,000 per child per year. This means that annual childcare costs of £10,000 per child can be met by £8,000 of payments by you, topped up by £2,000 from the government. You can pay in as much to this account as you want, whenever suits you.
What if you’re entitled to join or stay in an Employer Provided Childcare Scheme?
If you are entitled to both schemes then there are some careful calculations to be done to work out which way will provide better support.
A great place to start is the government’s Childcare Calculator. This will help you build an estimate of the financial support you may be able to receive. Voucher providers will also provide information.
However, remember that there are a number of variables that dictate the outcome, including:
- Employment status
- Cost of childcare
- Whether one or both parents are in an Employer Supported Childcare Scheme
Need some help?
Many estimates published online about how much you need to pay for childcare to make Tax-Free Childcare a better option than Employer Supported Childcare vary from £4665 to £9330, so it’s clearly important to get it right.
If you’d like some help working out the best option for your family, contact your tax adviser at Rawlinsons on 01733 568321, who will be happy to help you.