Guide to the Tax-Free Childcare Scheme

PLEASE read our update here :- www.tiaccountancy.co.uk/tax-free-childcare-guide/

In March 2014 the then coalition government first launched the Tax-Free Childcare Scheme with an anticipated rollout date of late 2015, however due to a legal challenge the launch was delayed until early 2017. When fully implemented, which is expected to be by April 2018, the new scheme will replace the existing Employer Supported Childcare Vouchers schemes (ESCV) with no further entrants allowed into any existing scheme after that date (although existing schemes can continue to provide for those within the scheme at that date.)

What is the Tax-Free Childcare scheme?

The scheme is an online account which you can pay into to cover the cost of childcare with a registered provider. For every 80p paid into your account the government will top up an extra 20p, this is the equivalent of the tax most people pay – 20% – which is how the scheme gets its name, ‘tax-free’. The government will top up the account with 20% of childcare costs up to a total of £10,000, the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children).

Unlike the current scheme, Tax-Free Childcare doesn’t rely on employers offering the scheme, any working family can use Tax-Free Childcare, provided they meet the eligibility requirements. This means the scheme will also be available for parents who are self-employed.

 What are the Qualifying Conditions?

The Adult

  • Be 16 years of age or older
  • Either
    • Be in work and earning at least the minimum wage for their age for 16 hours per week or at least £52 per week or
    • Be self-employed, with the expectation of making a profit
  • Not have a taxable income of over £100,000 per annum
  • Not receiving Tax Credits or Universal Credits
  • Not receiving childcare support from an employer or receiving childcare costs through any other government childcare scheme
  • Be responsible for a child.

The Child

  • The child will be a qualifying child until the end of the week in which the 1st September falls following the child’s 11th birthday unless the child is a
  • Disabled child. A disabled child will be a qualifying child until the end of the week in which the 1st September falls following the child’s 16th birthday
  • Must usually live with the adult
  • Must not be a foster child
  • Must not be in a secure children’s home or young offenders institution
  • Must not be in the care of a local authority.

Operating the account

Every child using a Childcare provider will need a separate account and once money is paid into the account for that child it cannot be switched between other children in the family or elsewhere. Parents and others (e.g. family, friends) can pay money into the childcare account as and when they like, there is no limit on the amount which can be paid into an account. The first £2000, or £4,000 for a disabled child, which is paid into each account in an entitlement period will get topped-up by £500, or by £1,000 if the child is disabled. Any further payments made into the account above this amount will be held separately and not get topped-up until the next entitlement period starts. Payments to Childcare providers can be made as regular or one-off payments, however, Childcare providers must be signed up to receive them. Parents will need to reconfirm the account eligibility every 3 months, if the account becomes none eligible it will be classed as ‘pay-only’ and will not be topped up by the government.

So will the scheme benefit you?

The scheme is expected to help around 2 million working parents, whereas, the existing ESCV scheme only supports around 450,000 families. Whilst the new scheme will certainly benefit the self-employed parent’s, statistics show that of those receiving the ESCV, 2 in every 3 would be “significantly” worse off! Therefore it is vital to know which scheme you would be better off in!

We will soon be launching our Childcare Impact Review which will help us to identify this for you.

If you would like any further information please contact me at lucy@tipayroll.co.uk.

 

Lucy

 



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