Tax-Free Childcare, which is the government’s new scheme to help parents with the cost of childcare, was launched on 28 April 2017.
For every £8 a parent pays into the scheme, the government will add in an extra £2.
Parents can receive up to £2,000 per child per year, towards their childcare costs to a total amount of £10,000.
Higher limits of £4,000 and £20,000 will apply for disabled children.
To qualify for Tax-Free Childcare all parents must work 16 hours a week or more (on average £120 a week) and each earn less than £100,000 a year.
The scheme will be available for children up to the age of 12, or 17 for children with disabilities. All eligible parents will be able to join the scheme by the end of 2017.
Parents will need to open an online account, which they can use to pay for childcare from a registered provider.
For those employers who currently offer Employer Supported Childcare, usually in the form of childcare vouchers, these schemes can remain open to new entrants until April 2018. Existing members will have the option to remain in their existing scheme or change over to Tax-Free childcare as their child becomes eligible.
| Childcare Vouchers | Tax-Free Childcare | |
| What is the maximum saving per year? | Up to £933 per parent (£1,866 per family). | 20% on childcare costs of up to £10,000 per child. |
| How much would I save? | If you spend £100 on childcare you could save £32 / 32% (based on a basic rate taxpayer). | If you spend £100 on childcare you could save £20 / 20% (based on a basic rate taxpayer). |
| Eligibility | Parents must be earning above the national minimum wage once Childcare Vouchers are deducted. | Parents must be earning above an average of £50 a week but under £100,000 a year. |
| Is it available to the self-employed? | No, Childcare Vouchers must be taken through PAYE salary deductions. | Yes, Tax-Free Childcare is available to the self-employed. |
| How long can I claim this for my children? | Childcare Vouchers are available to use for children up to the age of 15. | Tax-Free Childcare will be available for children up to the age of 12. |
| Can both parents claim if separated or divorced? | Yes, the saving is per parent, so both households can claim childcare vouchers. | No, the account is per child, so only one household can claim. |
| What happens if I take Child Tax Credits? | You are allowed to take both Childcare Vouchers and Child Tax Credits. | You will have to opt out Child Tax Credits to take Tax-Free Childcare, (which could result in a loss of £545 a year). |
| Must both parents be working? | No, whether your partner works has no effect on you claiming Childcare Vouchers through your employer. | Yes – TFC is for households where all parents are working at least 16 hours per week; both parents if they live together, a single parent, or the biological parent of the child and their partner (if they live with the child). |
| Where is the scheme administered? | Childcare Vouchers are run through payroll, so eligibility checks are completed by the employer. | Parents will be responsible for confirming their own eligibility every quarter, and managing their account. |
| Are there any other discounts on this scheme? | Yes, some special offers and extra discounts are available to parents (depending on the childcare voucher provider). | There are currently no extra savings or benefits planned with Tax-Free Childcare. |
| When does the scheme start? | Childcare Vouchers are available now, (the scheme will close to new joiners in April 2018). | Tax-Free Childcare is due to begin rolling out from early 2017, with disabled and very young children first |
| Will my childcare provider be able to accept payment via this scheme? | As long as your childcare provider is registered with Ofsted (or an equivalent governing body) they can accept childcare vouchers. | As long as your childcare provider is registered with Ofsted (or an equivalent governing body) they will be able to accept Tax-Free Childcare. |
For more information read this article on the government website “tax-free child care 10 things parents should know“. If you have any questions about tax benefits for parents give us a call on 01242 573 321.
