Tax-free childcare: what every parent needs to know

The Government's announced a new tax-free child allowance which they say could save us £2,000 per child. But how does it work - and will you qualify?

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The Government has today (14 February 2018) launched a tax-free childcare allowance, which, they say, is worth up to £2,000 per child for nearly 2 million working families.

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Parents set up an online account through the Government’s website and for every £8 they pay in, the Government gives £2 – up to a maximum of £2,000 per year.

The scheme is administered online (apply here) and is replacing Employer-Supported Childcare, which includes childcare vouchers.

You can find out all about it on the dedicated Childcare Choices website – but we’ve distilled some of the key info you’ll need right here.

How does the scheme work?

You open an online account through gov.uk (the Government’s website), which you can pay into to cover the cost of your childcare with a registered provider.

This can be nannies, nurseries, childminders, or breakfast/after-school clubs – but they need to be signed up to the scheme so you will need to check this first.

The Government will then top up your account with 20% of your childcare costs – which is equivalent to the basic rate of tax. It will do this for up to £10,000 that you spend on childcare.

So, if you spend £10,000 on childcare, you’ll save 20% (£2,000). If you spend £8,000, you’ll save £1,600.

Effectively, the government is paying the tax for you on the first £10,000 you pay for childcare, which is why they’re calling the scheme Tax-Free Childcare – and say families can save the equivalent of up to £2,000 for each child per year.

You will need to sign into your account every 3 months to confirm your details and to keep getting the Government top-ups.

If you get the 30 hours of free childcare, this scheme runs alongside it for any other childcare you might need. You sign up for both on the same site.

How do I qualify?

In families with two working parents, both of you will have to be in work, and both earning just over £120 a week (there are some exemptions for the self-employed; see below) and not more than £100,000 per year each.

If you’re a single parent, you will qualify as long as you’re in work, earning just over £50 a week and not more than £150,000 per year.

Families with just one parent in work will not qualify to claim.

My children are at school now. Does the scheme only apply to children under 5?

No, it will apply to available to those (who meet the other criteria) with children up to the age of 12 – or up to the age of 16, for those with children with disabilities.

I’m self-employed? Does it apply to me?

Yes. Unlike what’s on offer at the moment (Employer-Supported Childcare), self-employed parents will qualify too – hurrah!

And, to support newly self-employed parents, the Government is introducing a ‘start-up’ period during which self-employed parents need not be earning £50 a week or more. 

What if I’m on maternity leave? Will it apply to me?

Yes, the scheme is available to parents on unpaid statutory maternity and paternity leave – and also to parents on paid sick leave and adoption leave.

What if my kids are looked after by a nanny or a granny – or some other non-registered childcare provider?

As with tax credits, you must use ‘registered’ or ‘approved’ childcare to get help with your childcare costs. So, you won’t qualify for this new scheme if your children are looked after by a relative, friend or employee, unless that person is registered with Ofsted (in England), Care and Social Services Inspectorate (in Wales), Social Care and Social Work Improvement Scotland (in Scotland) or the Health and Social Services Trust (in Northern Ireland).

I’m already signed up to a tax-free voucher scheme through my employer. Will that be stopping now?

No. You do not have to switch to Tax-Free Childcare if you do not wish to and the existing employers’ scheme (Employer-Supported Childcare) will continue to run though it will be closing to new entrants from April 2018.

However those already registered by this date will be able to continue using it for as long as their employer offers it.

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