Don’t Miss Out On Tax-Free Childcare

Just in time for our TaxAction 2016 campaign, Ayesha Ping from NW Brown is here to remind us of the extra tax breaks available for those with children in childcare. Tax-free vouchers help to ensure that it’s the babies who are bouncing – not your cheques!

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The UK is bucking the trend in most of Europe and experiencing a baby boom. But with the economy growing too, and greater pressure on both parents to work, childcare is in greater demand than ever. In response to so many new arrivals (and financial pressures), the government has announced new measures to provide wider access to childcare savings for working parents from autumn 2017. In some ways it’ll be an improvement on the current scheme – but will it be better for you?

What’s changing?

Childcare vouchers that enable childcare to be paid free of tax have existed for some years, but these have been provided at the discretion of individual employers. The new scheme will make tax-free childcare much more generally available.

The scheme will allow parents or guardians to buy vouchers online to pay for childcare. The government will add 20p for every 80p spent, up to a limit of £10,000. In other words, if vouchers to the value of £10,000 are bought, the parent pays only £8,000 and the remaining £2,000 is paid by the government.

These vouchers can then be used to pay providers of childcare, including childminders, nannies, nurseries, before and after-school clubs and some holiday clubs. At launch only children under 5 will qualify, although by the end of the first year this restriction will have broadened to include all children up to 12 years of age.

The scheme will work in quarterly entitlement periods. Once eligible, parents will continue to be entitled to support for three months, regardless of any change in their circumstances.

Unlike the current employer scheme, both parents in the household must be working at least sixteen hours per week (this is also the case for single parent families) and each must be earning just over an average of £100 per week to be eligible. Additionally, the government scheme is open to self-employed parents unlike the employer scheme currently in place.

Those whose income exceeds £100,000 per annum or parents who receive support through tax credits or universal credit will not qualify for the scheme.

What about if I’m already receiving employer childcare vouchers?

All working parents in receipt of childcare vouchers from their employer’s scheme before the introduction of the new scheme will continue to receive these vouchers with the same financial benefits. As of autumn 2017 the employer schemes will be frozen to new entrants.

Should I stay or should I go?

Is it better to stick with what you have already, or switch to the new scheme when it arrives? Depending on your circumstances, you could be better off in your existing employer supported scheme. For instance if you:

  • are claiming vouchers for children between the ages of 13-15
  • are earning in excess of £100,000 per annum
  • have only one parent in the family working
  • work less than 16 hours per week or
  • require regular assistance updating your account, making payments to your childcare provider or adding new childcare providers to your account (the government scheme currently does not offer any helpline or contact email address for queries on the scheme).

If any of these apply to you, then may want to consider enrolling or remaining in your employer’s current scheme.

Ayesha Ping, NW Brown & Company.

For more hints and tips about saving tax, visit our TaxAction 2016 page.

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About the author

NW Brown & Company is a firm of Independent Financial Advisers based in Cambridge and Norwich. As one of the leading financial services groups in East Anglia they provide expert, bespoke, professional advice to personal and corporate clients alike.