Posted by martin humphreys - June 5, 2017 8:46 am Tax free childcare – what you need to know

On 21 April 2017, the Government introduced a Tax-Free Childcare scheme which will be gradually rolled out over the rest of the year.  The scheme will initially be available to parents of children aged under four on 31 August and to parents of disabled children under the age of seventeen.

It is anticipated that the scheme will help around two million families and this is especially good news for the self employed who were never able to benefit from an employer provided childcare scheme.

How does the tax-free childcare scheme work?

You will be able to open an online account (through GOV.UK website) in which you can pay funds to cover the cost of childcare with a registered provider.  Initial restrictions, as noted above, but should be available to all eligible parents by the end of 2017.

For every 80p you pay into your account, the Government will pay in 20p.  This top up has a maximum value of £2,000 per year per child.  Therefore, £10,000 of childcare costs would be paid £8,000 by the parent and £2,000 by the Government.

There will be flexibility to pay in different amounts each month therefore allowing the possibility of building up savings which can be used in future months.  Parents, grandparents, other family members and employers can pay into the account.

Withdrawals can be made from the account but the Government funding will also be withdrawn at the corresponding rate.

Who is eligible?

Parents with children under the age of twelve will be eligible for the scheme.  The scheme will also be available to families with a disabled child under the age of seventeen as their care costs are often higher for a longer period of time.

To qualify parents must be in work and each earning more than £120 per week (ie 16 hours at the National Living Wage of £7.50 per hour) and less than £100,000 per annum.

Any working family can use the new scheme providing they meet the eligibility requirements.  This differs from the old system which required the employer to offer a scheme.

The most welcome change is that self employed parents will be able to get support with childcare costs in new scheme unlike the previous Employer-Supported Childcare scheme.  In addition, to support newly self-employed parents, the government is introducing a ‘start-up’ period during which self-employed parents won’t have to earn the minimum income level.

The scheme will be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.

What if I already receive Employer-Supported Childcare?

There is no need to switch to Tax-Free Childcare if you prefer to stay in your employer’s existing scheme.  The current scheme will remain open to new entrants until April 2018 and parents registered by that date will be able to remain in that scheme as long as their employer continues to operate the scheme.

What else do I need to know?

Only childcare providers registered with a regulator can receive Tax-Free Childcare payments.

If you’re running a business, you’ll need your 10-digit Unique Tax Reference (UTR) number to sign up for Tax-Free Childcare.

The process is aimed to be as simple as possible but, every three months, you will need to reconfirm your circumstances using a straightforward online process.  There will also be a login service where parents can view accounts for all of their children at once.

If you require further advice regarding changes to Tax-Free Childcare please contact your usual McCabe Ford Williams office.

Further information is available on the Gov.UK website.