The Tax-Free Childcare scheme, introduced in 2017, had some teething problems and led to some frustration and confusion for parents.
We’ve brought our expert financial team on board to help explain the new tax credits in childcare and provide some useful insights into how it works and what it will mean for you.
What is tax free childcare?
Tax-Free Childcare is a government-backed scheme which offers eligible families up to £2,000 free to put towards childcare costs. The scheme was launched in April 2017 for the youngest children and will roll out to all ages by March 2018.
Tax-Free Childcare vs Childcare Vouchers
All working parents can apply (employed and self-employed)
Only available if employers offer the scheme
If a couple, both have to be working and earning a min of £120/wk each
No minimum earnings (only one parent needs to work)
Child’s max age is 11 (16 if disabled)
Child’s max age is 15 (16 if disabled)
Max income limit is £100,000 (if one parent earns more than this they are not eligible)
No income limit
Parents can't claim childcare tax credit (childcare element of working tax) or universal credit if they receive Tax-Free Childcare.
Parents can save up to £2,000 on their childcare costs per child, or up to £4,000 if their child is registered as disabled, for costs of up to £10,000. With the Tax-Free Childcare scheme the state will add 20p for every 80p parents pay, effectively giving you basic rate tax back on what you spend.
How Tax-Free Childcare works
How to register
Parents need to apply or sign into the government childcare service. There is one single application to apply for either the 30 hours free childcare for nursery aged children or Tax-Free Childcare for older children.
How to claim
Be aware that providers must be registered with Ofsted, the Early Years Register or the Childcare Register to qualify.
1. Log into your Tax-Free Childcare account 2. Pick a child (if you have more than one) → manage account → add a childcare provider 3. ‘Pay provider’ 4. Insert frequency of payment and payment date → pay 5. You will then be given a reference to pass on to your childcare provider
What if I already have Childcare Vouchers - can I continue receiving these rather than registering for Tax-Free Childcare? Yes, but once you’ve stopped using Childcare Vouchers, you only have the option of Tax-Free Childcare. You can continue to use Childcare Vouchers until your employer stops offering them or you change jobs. Parents are only eligible to sign up for Childcare Vouchers until April 2018 – after that they can only have the option of Tax-Free Childcare.
What if I’m registered for Childcare Vouchers but Tax-Free Childcare would be better for me? Register with Tax-Free Childcare and give your employer written notice that you wish to leave the Childcare Vouchers scheme. You can also call your Childcare Voucher provider and explain that you wish to terminate your membership. This needs to be done within three months.
It’s certainly not been plain sailing for parents or providers so far but we hope this offers some useful information. For more details, take a look at this guide from Money Saving Expert, or review the government advice.