The Government recently consulted on a new proposed scheme to help working parents with the cost of their registered childcare. The scheme is due to be introduced in autumn 2015. Here is a summary of the top 10 facts currently known about “Tax Free Childcare”.
• Tax Free Childcare will be worth an estimated £750m and is scheduled to be introduced in autumn 2015 although the exact date is still to be confirmed.
• Families who are eligible for the new scheme will be provided with up to £1,200 a year for each child, up to a maximum of 20% of their total childcare costs.
• Parents will open an online voucher account and have their payments topped up by the Government.
• To qualify for ‘Tax Free Childcare’ both parents, or one parent in a single parent family, will have to be working and each must earn less than £150,000. This means that two parents with a joint income of £299,999.98 will still be eligible.
• The scheme will initially only apply to parents with children under the age of five, but will build up over time to include all children under 12.
• The new scheme will replace the current Childcare Voucher scheme after the general election in 2015. Parents who currently claim Childcare Vouchers will be able to remain in the scheme if they choose to do so, but after the launch of the new scheme, the existing Childcare Voucher scheme will be closed to any new entrants. It is not possible for parents to receive both.
• Under the current Childcare Voucher scheme a basic-rate tax payer can typically make around £900 per year in tax and National Insurance savings. Where both parents work and can avail of the scheme, families can save up to £1,800 a year.
• Childcare Vouchers are available as an employee benefit to parents whose employer chooses to offer the scheme. It is not compulsory for employers to offer the current scheme. ‘Tax Free Childcare’ is expected to be open to all working parents who meet the criteria.
• The new scheme will also be offered to self-employed parents, who are currently unable to avail of Childcare Vouchers.
• Families who claim tax credits and receive support through the new Universal Credit, which is due to be introduced in stages until 2017, will not be eligible for Tax Free Childcare. Parents receiving Universal Credit, where both parents are in work and earn more than the personal tax allowance (which is due to reach £10,000 by 2015) will be able to claim up to 85% of their childcare costs. Parents on Universal Credit who do not earn this amount will be eligible for only 70% of the costs of childcare.
Employers can sign up to the current Childcare Voucher scheme now to ensure that they are making childcare savings available to their employees, and will also make savings on their employers National Insurance Contributions. Some parents will be better off on the existing Childcare Voucher scheme, so should register now to protect their savings in the future, even if they are not currently paying for childcare. Employers For Childcare can provide parents with information on which scheme they will be better off on. Call 0800 028 6538 for free, confidential and impartial advice.