As you may know, employer childcare schemes will no longer be available to new applicants, from April 2018. In its place, HMRC have decided to introduce a new tax free childcare scheme, in conjunction with National Savings & Investments.
What is the government tax free childcare?
The aim of this government initiative, is to help parents manage the mounting costs of childcare. If you are eligible for the scheme, for every £8 a parent pays into their childcare account, the government will top it up by £2.
At the moment, any working parents that have children, aged under 4 on 31st August 2017, can apply through the new digital childcare service for tax-free childcare. This is going to be extended over the course of the year, to include children up to the age of 11.
Things to know:
- The maximum you can pay into the scheme is £10,000 per year, per child. It is ONE account per child, so if parents have separated, you need to reach a mutual agreement to go ahead with this option.
- Unlike existing childcare vouchers, the scheme is open to all eligible workers, including the self-employed. Importantly, if you are self-employed, you AND your partner will need to be in work to qualify.
- To qualify, you both need to earn a minimum of £120 per week and no more than £100,000 per year.
- Warning: It’s important to note, you won’t be able to get the childcare element of working tax credit or universal credit if you’re signed up to the new Tax-Free Childcare scheme. If you open a childcare account, you will lose the childcare element of tax credit permanently.
What’s the alternative?
There are 2 alternatives, however, these are not available to everyone:
Employer supported childcare voucher scheme: this option is not available to the self-employed and is only accessible, if you employer operates a qualifying scheme.
- Childcare element of working tax credits or universal credits: The level of tax credit awarded, depends on a number of factors including, household income, number of children and weekly childcare cost. Please visit https://www.tax.service.gov.uk/tax-credits-calculator, for further details.
What should you do now?
Our first tip, is to check if you are entitled to the childcare element of working tax credits.
Secondly, check to see if your employer or your partner’s employer, offer an Employer supported childcare voucher scheme.
If you are also the company director, you should consider setting up a childcare voucher scheme, as there may also be savings from an Employer’s point of view.
When it comes to childcare, you need to ensure you are choosing the best possible option for your situation. What suits your mate down the pub or the parent at the school gates, may not suit you. If your family circumstances change, you should re-assess your options. Based on the reviews we have carried out so far, the best option is not always the obvious one.
This website provides a good starting point, when considering the choices available: https://www.childcarechoices.gov.uk/
If you feel it would be beneficial to have Courts Accountants conduct a review into your childcare options, please do not hesitate to contact a member of the team for further details.