The new tax-free childcare scheme will allow eligible parents to place funds into an online account and receive basic rate tax relief. The scheme launched on 21st April for children under four and will be rolled out fully during the remainder of 2017.
Working parents of children who will be aged under 4 on 31st August 2017 can now apply through the new digital childcare service for Tax-Free Childcare and receive a government top-up of £2 for every £8 that they pay into their Tax-Free Childcare account. All parents of disabled children (under 17 years old) will also be able to apply for Tax-Free Childcare from 21st April onwards. In addition, parents of 2-3 year olds, who will be eligible for a 30 hours free childcare place in September, can apply through the childcare service and start arranging a place with their childcare provider.
The Childcare Choices website provides information on the government’s childcare schemes and explains how parents can pre-register or apply. It also includes a childcare calculator to show eligible families how much they could receive.
For parents across the UK, Tax-Free Childcare will cut childcare costs by up to £2,000 per year for each child under 12 years old, or £4,000 per year for disabled children under 17 years old. For every 80p put in by parents (or others on their behalf), the government will add 20p. The maximum government contribution is £2,000 (£4,000 for disabled children) so if parents contribute £8,000 they receive the maximum government contribution.
To be eligible for the new scheme, a parent must have a child under 12 (under 17 if disabled), earn at least £120pw and not more than £100k pa. Unlike the childcare voucher scheme, this scheme is not administered via an employer so is open to the self-employed. To help the newly self-employed, during a ‘start-up period’ the parent doesn’t need to have a minimum income of £120pw.
People can contribute at any time. If funds are withdrawn the government contribution is lost.
Anyone eligible for both the new tax-free childcare scheme and the existing childcare voucher scheme must decide which represents the best option for them – a comparison of the two scheme is given below:
Childcare Vouchers
Who Can Benefit ?
Employees if offered by their employer
Availability
Until April 2018 for new registrations – once registered can use for as long as the employer offers the scheme
Maximum government Contribution each Year
Between £600 and £900 per parent assuming maximum amount claimed
Benefit to User
Between 32% and 47% depending on tax position
Tax-free childcare
Who can benefit?
Both parents provided they each earn at least £120 pw but not more than £100 K pa
Availability
Opens between 21st April 2017 and end of 2017 – youngest and disabled children first
Maximum government contribution each year
£2,000 per child (£4,000 if disabled child)
Benefit to user
20%
