childcare costs

Which Childcare Scheme Will Save You The Most Money? – 11 February 16

Most people imagine childcare to be an issue for new mums attempting to return to work. Some understand it’s a more widespread concern than that. The truth of it is that childcare is something all parents need to be clued up on, even once our children are well out of nappies. Whether it’s preschool places, after school clubs or activities to help working parents during school holidays, parents have varying childcare needs throughout their children’s lives.

Not only is childcare absolutely necessary for many of us, it can also have a serious impact on our household income. While most parents would agree that you need to pay for quality childcare with experienced and qualified staff, it still doesn’t make it any easier parting with the cash! To help manage these expenses, the UK government has made some assistance available, in the form of tax credits, vouchers and free nursery places, so it makes perfect sense to spend some time getting to know which of these options will work the best for you.

Here’s what you need to know about the current government childcare schemes, and what will save you money.

Tax Credits Explained

As a parent, you’ll already be entitled to child tax credits, but did you know you could also claim an element of working tax credit if you use paid for childcare for any part of your week? The benefit is, rather confusingly, called the ‘childcare element of working tax credit’, but what it really means, in simple terms, is a payment to help with your childcare costs.

Thousands of families are missing out on these payments, and with the average childcare tax credit payment standing at around £60 per week, that could be as much as £3,000 per year you are missing out on! However, the eligibility criteria and entitlement system are somewhat complex, so it can be hard to know whether you are able to claim or not.

In a nutshell, you will qualify for childcare tax credits if:

  • You and your partner are working more than 16 hours per week
  • You are single and working more than 16 hours per week
  • Your household income is less than £46,000

If this sounds like you, you should definitely check whether you qualify or not. This is not a guarantee that you will get anything, but if you fit these basic criteria, you should definitely invest in a phone call to the tax credits helpline to avoid missing out.

If you do qualify for this assistance, you could end up with up to £122.50 per week for your first child, paid as a proportion of your childcare costs. If you have more than one child, the benefit is capped at £210 per week, again as a proportion of your total childcare costs.

Universal Credit

Universal credit is being introduced in stages, so currently you may or may not be in an area where this is the benefit to apply for. If you live with or marry a partner who is already claiming universal credit, then this may be the route you go down. You are eligible for the childcare element of universal credit if:

  • You earn less than £2,167 per month as a couple or a single parent,
  • One of you is not working,
  • One of you is in prison, hospital or residential care.

You can get 70 per cent of your childcare costs met by universal credit, up to a maximum of £532.29 per month for one child, and £912.50 for two or more children.

Unfortunately, you don’t get a choice as to whether you claim childcare costs under universal or working tax credits, as it will depend on the area in which you live and your personal circumstances. However, when considered as a whole benefit, along with the other elements of the payment, they both work out just as beneficial financially.

The Childcare Voucher

Childcare vouchers allow you to set aside a proportion of your salary to pay for your childcare costs, which are exempt from tax and national insurance. This works by setting aside, for instance, £1,000 of pre-tax salary, which is worth around £700 in your pocket, in return for £1,000 of childcare vouchers. This means you could be getting £300 of free childcare for every £1,000 of salary you sacrifice.

nursery parent pack

This is a great way for people who are on a higher salary to make childcare more affordable. Each parent is allowed to claim up to £243 of vouchers, so as a couple, you could be claiming in the region of £150 of free childcare each month. However, there are some nuances with this tax free scheme which could see you worse off if you aren’t on the ball with the rules. You need to understand that:

  • More childcare = more tax credits, but vouchers don’t count,
  • Every penny you pay for with vouchers is taken off your ‘paid’ childcare fees,
  • You could be fined if you don’t notify the tax credits office if you’ve started using vouchers.

As an example, if you pay £100 per week in childcare, and use £60 worth of vouchers, you can only claim £40 on your childcare tax credits. This means you could potentially be worse off if you decide to use the voucher scheme in some instances. On the other hand, if your income is just above the threshold for tax credits, you could bring yourself to within the threshold by sacrificing salary under the voucher scheme.

When To Use The Voucher Scheme

It’s hard to define a perfect guideline to when the vouchers are the best available option, but as a basic rule:

  • If you’re on a lower income and sacrifice salary to get within the threshold,
  • If you are not eligible for tax credits at all,
  • If your childcare costs are over £175 for one child or £300 for two or more.

You can find out more about tax credits, the universal credit and vouchers by calling the tax credit helpline on 0345 300 3900.

Free Childcare Places

If you have a little one at home and you live in England, there are free places offered at childcare and nursery establishments for all three to four year olds throughout the country. Your child can receive childcare for up to 15 hours per week, for 38 weeks of the year, completely free of charge, including day nurseries, pre-schools and childminders.

Families on a low income might also be able to claim this help when the child turns two, so contact your local authority to find out.

The Government have pledged to double the amount of free childcare for working parents in The Childcare Bill, in some cases this may be rolled out as early as September this year.

The Final Verdict

If you have preschool aged children it would be madness not to take advantage of the savings on offer. For school aged children, it is important to remember that both childcare vouchers and tax credits can be used against both after school activities and even against holiday clubs and camps. It’s sometimes hard to make work and school holidays mix, so take advantage of these cushions while they are available.

For help with tax credits, contact the tax credits helpline on 0345 300 3900, and for advice on childcare voucher you can call 0800 247 1233.

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