Tax Free Childcare

Over the years government and HMRC have had to recognise the cost of childcare for young families.  The reasons are numerous from the cost of settings to the lack of the loss of extended family providing childcare.

It is worth looking into both from an Employers view and as an employee.  Different options are available and work best depending on the specific circumstances.

These are the 4 main types of assistance with the cost of childcare:

1. Tax Free Childcare
2. Working tax credit
3. Childcare vouchers
4. Free Childcare

There are numerous schemes to help parents, but you need to find the one that works best for you.

1. Tax Free Childcare

Tax-free childcare

Tax-free childcare is a government scheme that pays working parents a 25% top-up based on what they pay for childcare - up to a maximum of £2,000 a year, given when parents pay out at least £10,000.

The scheme was launched in April 2017, and is the main option for parents who are in work.

Am I eligible?

You (and your partner, if you have one) must be in work, or getting parental leave, sick leave or annual leave. If you're employed, you must both earn at least national minimum wage or living wage for 16 hours a week.

If you're self-employed and started your business less than 12 months ago, the earnings limit doesn't apply.

How much will I get?

You can get up to £500 every three months for each child. The government will pay 25% of what you pay a childcare provider via an online account - the childcare must be approved.

Pros

You can claim tax-free childcare at the same time as 30 hours free childcare if you're eligible for both.

It only takes 20 minutes to apply online.

As part of your application, you'll find out if you're eligible for both tax-free childcare and 30 hours free childcare.

It can be used by self-employed workers.

Cons

• It doesn't apply to foster children.
• You can't claim if you or your partner earn more than £100,000.
• It's only for children aged 11 or under.
• If you're not working, you can only apply if you're due to re-start work in the next 31 days.
• If you have a partner, both of you must be working to be eligible.

2. Working tax credit childcare element

The childcare element of working tax credit is designed to help parents on low incomes who are in work pay for childcare, in order to help them stay in employment.

Am I eligible?

You and your partner, if you have one, must work at least 16 hours a week. If one of you is not working it must be because they're either incapacitated, in hospital, in prison or entitled to carer's allowance.

How much will I get?

You can get paid up to 70% of what you pay for childcare, up to a maximum of £175 per week for one child, or £300 a week for two or more children.

Pros

If you're already claiming tax credits, you can just call HMRC to see if you can add an extra childcare element payment to your claim - you don't have to fill out a whole new application form.

Cons

It's complicated to work out yourself how much you'll receive.

You have to call HMRC whenever your childcare costs change by an average of £10 or more a week, or if they stop.

Your payments may be limited by the child tax credit two-child limit.

3. Childcare vouchers

This was extremely popular but the scheme is now closed to new applicants. If you're already enrolled, you may continue using the scheme for as long as your employer offers it.

Childcare vouchers are given out to employees by employers who decide to run the scheme. You swap your wages for the vouchers, which must be spent on approved childcare providers.

How much will I get?

You can take up to £55 a week of your wages as childcare vouchers. This means basic-rate taxpayers could gain £930 a year per parent, higher-rate taxpayers might get £624 a year and top-rate taxpayers can get £590.

Pros

• You can save on income tax and National Insurance payments, as the vouchers are taken out of your wages before tax.
• If you have already been given vouchers, there is no deadline for when you have to use them by.
• Only one parent needs to work to be eligible.
• It's for children who are aged 15 or under (as opposed to tax-free childcare, which is only for children under the age of 12).

Cons

• If you haven't already applied, you cannot enroll in the scheme.
• Whether you can continue to use the service depends on whether your employer continues to offer it.
• It's not available to anyone who is self-employed.
• You can't continue to claim if you take a career break for longer than a year.

4. Free Childcare

15 and 30 hours free childcare for three and four-year-olds

All children in England that fall in this age range are eligible for 15 free hours of childcare a week for 38 weeks a year. Care must be from an approved childcare provider.

Am I eligible?

Everyone is eligible for 15 hours of free childcare. You may be able to get 30 hours free childcare a week if you or your partner are in work and earn at least the national minimum wage or living wage.

If either parent is on maternity, paternity or adoption leave, or is unable to work due to disability or caring responsibilities, then you may still be eligible.

However, neither parent can earn more than £100,000 a year to use the scheme.

How much will I get?

You won't get paid. The funding is sent to your childcare provider from your local council, so you'll benefit from free services.

Pros

You can get 30 hours free childcare at the same time as claiming universal credit, tax credits, childcare vouchers and tax-free childcare.

It takes 20 minutes to apply, and you'll also find out if you're eligible to claim tax-free childcare with the same application.

Cons

It's offered through the local council where the childcare is based, so options depend on local availability.