Tax-Free Childcare

The Government announced late last year that it will support working parents with the cost of childcare. This included doubling the 15 hours a week free childcare to 30 hours a week and introducing ‘Tax-Free Childcare’, which is now available to self-employed parents and all qualifying working parents.

In April 2017, HM Revenue and Customs (‘HMRC’) started to introduce the childcare service; a single website through which parents can apply for both 30 hours free childcare and Tax-Free Childcare.

Recently, HMRC have provided the service to parents whose youngest child is under 11 or who has their 11th birthday on that day (or 16 for children with disabilities). These parents can now apply online through the childcare service which can be accessed via the ‘Childcare Choices’ website (https://www.childcarechoices.gov.uk/) but must be signed up to a Government Gateway account (https://www.gov.uk/government-gateway). You can transfer the money into this account to pay for your childcare and the Government will top it up by 20% on the same day.

Whilst the vast majority of parents used the childcare service without any problems, HMRC noted that over the summer some parents did not receive the intended level of service when using the Childcare Choices website to which they have now made ample improvements.

Over the coming months, HMRC will continue work to improve the system. This means HMRC can manage the volume of applications going through the service, so parents continue to receive a better experience and prompt eligibility responses when they apply – almost all parents receive a response within five working days, and most get their decision instantly.

Eligibility:

Please note that you would not be eligible if either you or your partner has taxable income over £100,000. Please check with your Barnes Roffe Partner if you are unsure of your tax position.

You can usually claim Tax-Free Childcare if you (alone or with your partner) are:

  • employed – or getting parental leave, sick leave or annual leave.
  • each earning at least the National Minimum Wage or Living Wage for 16 hours a week – this is £120 if you’re over the age of 25.

If you’re not working, you could still be eligible if your partner is working, and you get Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or Employment and Support Allowance.

Please be aware that the earnings limit does not apply if you’re self-employed and started your business less than 12 months ago.

Your childcare provider must also be signed up to the scheme before you can pay them and benefit from Tax-Free Childcare. Please check with your provider to see if they’re signed up to the scheme.

All eligible parents will be able to apply from 1 April 2018.

Childcare Vouchers

Childcare vouchers allow you to pay for childcare from your salary before tax.

From October 2018 (the exact date is to be confirmed), no new entrants will be able to apply for the Childcare Vouchers scheme. Previously it was due to close for new entrants from 6 April 2018, however there has been an extension. Although, if you’re already a member, you will be able to continue for as long as your employer runs the scheme, or as long as you stay with your current employer.

Other childcare options continue to be available. Please see https://www.gov.uk/childcare-calculator, depending on your circumstances it will calculate what is best suited to you. The pros and cons depend a lot on how much you earn, how much tax you pay, and how much you pay for childcare.

 

Blog written by: Lauren Geary

 

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