If you’re a working parent, then we have some good news: You’ll soon be able to benefit from two new government childcare schemes, launching this year. The schemes are:
These are two separate government initiatives, both designed to help parents deal with the increasing cost of childcare in the UK. Let’s take a look at them in a little more detail.
First, do you qualify?
To qualify for either scheme, parents must be working and each earning at least £120.00 a week (on average) and no more than £100,000 each per year. Parents cannot use Tax-free Childcare at the same time as they receive childcare vouchers, Universal Credit or tax credits. However, 30 hours free childcare can be received alongside these schemes.
One of the key benefits of these new initiatives is that for the first time they will not be limited to full-time employees working for an employer; you can also enjoy benefits if you are:
- Working part time
- On maternity, paternity or adoption leave
- Starting your own business.
To support newly self-employed parents, the government is introducing a ‘start-up’ period. During this, self-employed parents won’t have to earn the minimum income level.
The scheme will also be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.
How will ‘Tax-free Childcare’ work?
Parents can now open a new childcare account, and for every £8 they pay into it, the government will pay in an extra £2. Parents can get up to £2000 government support per child per year towards their childcare costs – that’s up to £500 every 3 months.
If they have a disabled child, they can receive up to £4000 per child – a total of £1000 every 3 months. They can then use this money to pay their childcare provider.
You’re usually eligible if all of the following applies:
- is under 12, or 17 if they’re registered as having a disability
- usually lives with you (and your partner, if you have one)
- live or work in the UK
- are employed or self-employed
- are over 21 and earn on average at least £120 a week, unless in your first year of self-employment. Different rates apply if you’re under 21 or an apprentice
- earn less than £100,000 a year each
- don’t get other support with your childcare, including from a childcare voucher or salary sacrifice scheme
How will the ‘30 Hours Free Childcare’ work?
All 3 and 4-year-olds in England already get 15 hours free childcare a week.
If their parents are living and working in England, 3 and 4-year-olds may now be entitled to 30 hours of free childcare.
The criteria for eligibility is the same as that for Tax-free Childcare, except you can continue to receive the following types of support at the same time as the 30 hours of free childcare:
- tax credits
- Universal Credit
- childcare vouchers or salary sacrifice schemes
- childcare grants and bursaries
Some things to consider
It’s important for parents to think about which childcare support option is best for their circumstances. There are a number of factors to consider here: what the best “combination” of schemes are; practicality; tax efficiency; overall cost; and the implementation of the scheme(s).
Trying to establish eligibility can be difficult and often one’s financial circumstances are not black and white, especially when a parent is self-employed. What’s more, the “start-up” period for helping newly self-employed individuals can be tricky to navigate.
Parents need to be aware that if their circumstances change, or they no longer want to pay into the account, they can withdraw the money they have built up, but the government will also withdraw its corresponding contribution.
Tax-free Childcare doesn’t rely on employers offering the scheme, unlike the current Employer-supported Childcare scheme. Any working family can use Tax-free Childcare, provided they meet the eligibility requirements. You also do not have to switch to Tax-free Childcare if you do not wish to. Employer-supported Childcare will continue to run as normal, and the current scheme will remain open to new entrants until April 2018. Parents already registered by this date will be able to continue using it for as long as their employer offers it.
Employer’s workplace nurseries won’t be affected by the introduction of Tax-free Childcare.
Working out eligibility, how to get the best combination of childcare schemes, and navigating the HMRC guidance can be tricky at the best of times.
Ten Forward will look at the whole picture and help you find the best fit. Most importantly, we can then guide you through the process and keep an eye out for changes in circumstances and legislation.
Contact us today and speak with one of our friendly advisers for a free review of your childcare situation.