Tax Free Childcare

Tax Rebate: New Tax-Free Childcare Scheme For Parents

What is the new Tax-Free Childcare scheme?

This scheme is being introduced to provide support with childcare costs for those parents who want to go back to work. Approximately 2 million families should be able to benefit.

Tax Free Childcare

Childcare made more affordable – photo by Shutterstock

Why is it called ‘Tax-Free Childcare’?

Good question! It works on the basis that for every 80p parents (or another family member or employer) puts into their Childcare account; the government will ‘top it up’ with another 20p. This equates to 20%, which is the basic rate of tax that most of us pay on our income. The government will provide this additional amount up to £2,000 per annum for each child; and up to £4,000 for each disabled child. This money can only be used to pay for costs that are paid to a registered childcare provider.

How old do my children need to be to qualify?

This scheme is applicable to all children up to the age of 12; or 17 if they have a disability.

How do I qualify, as a parent?

The scheme is intended to be able to work around different employment circumstances. The basic eligibility criteria are:

  • Parents that are employed earn between £100 per week and £100,000 per year.
  • Parents that are self-employed are also eligible within these earning limits and with a ‘start up period’ that means you don’t have to bring in the minimum level as you are establishing your business.
  • Parents that are on unpaid or paid statutory adoption, paternity or maternity leave.
  • Parents that are on paid sick leave.

Who pays into the scheme?

The big difference is that parents do not have to rely on employers offering access to the scheme. As long as your family meets the criteria, you can make use of the Tax Free Childcare Scheme. Parents, other family members and employers can all make contributions.

Do I have to pay in the same amount each month?

No, you can vary the amount you pay in according to your other financial commitments. This also means that you can build up the amount in your Childcare account to cover times, like school holidays, when you may need more childcare than usual.

What about my workplace nursery place?

Places at workplace nurseries are unaffected by the introduction of the new Tax-Free Childcare scheme.

Can I get my money back out of this Childcare account?

Due to its flexibility, you can withdraw your money whenever you want. The government will then simultaneously withdraw its contribution.

What about the Employer Supported Childcare Scheme?

This is the existing scheme that relies on the involvement of your employer. Once the new scheme has been launched, parents will no longer be able to register for the Employer Supported Childcare Scheme. But if you are already part of it and your employer continues to offer it, then the choice between the two schemes is up to you.

The government intends the new scheme to include more than double the number of families that can access the Employer Supported Childcare Scheme.

How will it work?

Each parent will have their own online childcare account through the GOV.UK site. The process is intended to be as simple as possible and will mean that, if you have more than one child, you can view all of their accounts at the same time. After initial registration, parents will need to ‘re-confirm’ their financial situation once every three months, online. At the moment the launch of this new Tax- Free Childcare scheme is planned for the beginning of 2017.

This article was provided by Paul Donohoe, Managing Director at Tax Rebate Services. To find out if you should be declaring Child Benefit on your tax return, visit the website today or call the specialists on 01228 520477.

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