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Tax-Free Childcare

Registration opens for new initiative

21st April saw the introduction of the Government’s Tax-Free Childcare scheme, available to parents of children under 4 and disabled children under 17. It will be gradually rolled out during this year by age of child, and by the end of 2017 all eligible parents will be able to receive support.

Tax-Free Childcare will be available to over two million households to help with the cost of childcare. Working parents will be able to open an online childcare account, and for every £8 families pay in, the Government will make a top-up payment of an additional £2, up to a maximum of £2,000 per child per year (or £4,000 for disabled children). Parents will then be able to use the funds to pay for registered childcare.

Employer-Supported Childcare

Tax-Free Childcare will eventually replace the existing childcare voucher scheme, Employer-Supported Childcare. However, switching to tax-free childcare is not mandatory and existing Employer-Supported Childcare schemes will continue to run and will be open to new entrants until April 2018, to support the transition between the two schemes. Parents already registered by this date will be able to continue using it for as long as their employer offers it.

Tax-free childcare does not rely on employers offering it, and any working family can use a tax-free childcare account, provided they meet the eligibility requirements.

In the first instance, a parent or guardian opens an online account and decides how much to pay in. Every three months circumstances are re-confirmed online. As anyone can pay into the account, e.g grandparents, other family members, there is flexibility to vary payments. Employers can also contribute to their employee’s parents’ childcare accounts, but such contributions have to be in accordance with income tax and NIC rules.

To assist parents with their childcare decisions, the Government has developed the Childcare Choices website where they can find out about the available Government support in one place. On the website, there is also an easy-to-use childcare calculator where parents will be able to decide which offer is best for them. The website can be found at www.childcarechoices.gov.uk.

Qualifying for government contributions

As a general rule of thumb, to qualify for the government contribution, account holders will have to be in work, earning at least £120 a week but not more than £100,000 per year.

The scheme will also be available to self-employed persons.

30 hours free childcare

The current 15 hours of free childcare will be doubled as from September 2017, for working parents of three and four-year-olds in England. This will produce an annual saving of up to £5,000. Eligible parents can apply online through the childcare service. They are then sent a code to enable them to arrange their childcare place ahead of September. Parents then give this code to their provider or council, together with their N.I number and child’s date of birth, which will be checked for authenticity before a free childcare place is designated.

Role of employers

When a parent in receipt of Employer-Supported Childcare (childcare vouchers) opts to move onto Tax-Free Childcare, they will need to provide their employer with a Childcare Account Notice (CAN). This is a written document (which can be an e-mail) stating that they wish to leave their employer’s voucher scheme and use Tax-Free Childcare. A parent will have 90 days from opening their Tax-Free Childcare account to give their CAN to their employer. At this point, the employer will need to terminate their access to Employer-Supported Childcare.

Enquiries

Unlimited access to QAccounting’s in-house experts is included in each of our accounting packages. If you have any questions about Tax-free childcare, or any other query, please contact our team.