In order to support parents who currently work, wish to return to work or increase their working hours the government has introduced new ways to help with childcare costs.
A: Tax Free Childcare Scheme
This long awaited scheme will start being slowly rolled out by the government from 28 April 2017 and over time will replace the existing Childcare voucher scheme. Chancellor Phillip Hammond has confirmed by the end of 2017 around two million households will be eligible for tax-free childcare including parents who are self-employed. Eligible parents will be able to open an online account to pay for registered childcare and for every 80p you pay in the government will top up an extra 20p. This 20% top up is the amount of tax most people pay which is why the scheme has been given the name ‘tax free’. The government will contribute up to £2,000 support per child per year (or £4,000 for disabled children).
Am I Eligible for Tax Free Childcare?
The scheme is available to working parents for children up to the age of 12 (or up to 17 if your child is registered disabled).
To be eligible, you and any partner needs to be working and earning a minimum of the equivalent of 16 hours per week at the National Living or Minimum Wage (currently £120 per week) but no more than £100,000 each annually (a combined income exceeding £100,000 is fine). You can work less than 16 hours and still be eligible as long as your weekly earnings are more than £120.
Unlike Childcare Vouchers the Tax-Free childcare scheme will be available to you if you are self-employed as long as your weekly earnings averaged over a three month period meets the £120 minimum.
Also, unlike the current Childcare Voucher Scheme, Tax-Free childcare is available to all eligible working parents independent of their employer.
The scheme will also be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave. You cannot apply for the child you are on leave for until you return to work, but you can apply for any other children you have.
You will not be eligible for Tax-Free Childcare if you are receiving childcare vouchers or if you receive working tax credits for childcare.
Make sure your childcare provider is eligible for the new scheme:
Your childcare could be provided by a number of different services: nursery; playgroup; after-school club; nanny or childminder. However your provider must be registered with a regulator such as Ofsted, The Early Years register or The Childcare Register to count as childcare under the new scheme. They must also be registered with the new Tax-Free Childcare scheme for you to be able to sign up. We recommend that you check with your current provider if they’re registered or in the process of registering now.
B: Childcare Vouchers
Childcare Vouchers are a great option for parents who are ineligible for the new scheme.
There is no limit to the amount you can earn with Childcare Vouchers – everyone is able to join a childcare voucher scheme as long as your employer offers it. Also, if you are a couple and one parent doesn’t work you may still be entitled to childcare vouchers.
In April 2018 the existing Childcare Voucher Scheme will close to new entrants. At this time, parents who currently take Childcare Vouchers will be able to choose whether they switch to Tax-Free Childcare or remain on the existing scheme. Following April 2018 you will be able to continue receiving vouchers only as long as your employer continues to run the scheme.
The government has set a limit on the amount of Childcare Vouchers you can earn per month:
- £243 each month for a Basic Rate taxpayer (£0-£45,000)
- £124 each month for a Higher Rate taxpayer (£45,000-£150,000)
- £110 each month for an Additional Rate taxpayer (£150,000+)
Tax-Free Childcare Vs Childcare Vouchers
|Tax-Free Childcare||Childcare Vouchers|
|Anyone can apply (employed & self-employed)||Only available if Employer Offers them|
|£120 per week Minimum Earnings:
If a couple, both partners must work
|No Minimum Earnings:
one parent must work
|Child’s maximum age:
12 (17 if disabled)
|Child’s maximum age:
15 (16 if disabled)
|Max Income Limit:
Less than £100,000 per parent
|No Income Limit|
C: 30 hours free childcare:
Currently all children living in England aged three and four are entitled to 15 hours of free early education a week (similar entitlements are available in Scotland, Wales and Northern Ireland). From September 2017 the entitlement to children of working families will double to 30 hours a week, potentially saving working parents up to £5,000 per child.
The 30 hours is only available for 38 weeks per year, rather than 52. It’s basically equivalent to the school term times. This means, if eligible, your child will be entitled to 1140 free hours across the year.
The free hours will be available to use at participating:
- Nurseries and nursery classes
- Playgroups and pre-school
- Sure Start Children’s Centres
Am I eligible for the extra 15 hours per week?
To receive the extra 15 hours of childcare your child must be between the ages of 3 and 4 when the scheme starts in your area. If a couple, both partners must be working and earning a weekly minimum of £120 per week. You must also each have an annual earnings of less than £100,000. The scheme is only available to working families living in England.
The current 15 hours of free early education will continue to be available to all 3 and 4 year olds.