The new Tax-Free Childcare scheme outlined below has been delayed until 2017. This post was written and published prior to this announcement.
It is our understanding that the information contained in this post is still accurate.
From autumn 2015 the Childcare Voucher Scheme is scheduled to be replaced by a new government initiative, Tax-Free Childcare. For those eligible it will cover 20% of childcare costs for children up to the age of 12. It will also be available for children with disabilities up to the age of 17, because their childcare costs can stay high during their teens.
Are You Eligible For Tax-Free Childcare?
To qualify all parents in the household must be working, not receiving tax credits or Universal Credit, and not earning over £150,000. The government plans to make the scheme available first to families with children under 5, phasing in older children over time.
What Kind Of Saving Will I Make With Tax-Free Childcare?
Eligible families will get 20% of their yearly childcare costs up to £10,000 per child, until they reach 12 years old. This could mean payments of up to £2,000 per child not only on nursery or childminder costs, but also on after-school and holiday clubs.
What If You Already Take Childcare Vouchers?
Current claimants can stay in the childcare voucher scheme if they want to, otherwise known as Employer Supported Childcare (ESC). However, if you change to Tax-Free Childcare you will not be able to change back. If you’re not currently using ESC, it maybe worth signing up now so that you have the option to continue in the autumn.
Will I Be Better Off With Tax-Free Childcare?
Not necessarily, the criteria for both schemes are different so you may find that taking childcare vouchers is still better for your circumstances. This is why it is worth investigating both options now and signing up to childcare vouchers before the autumn if that is the better deal for you.
For example, if one parent isn’t working you won’t be eligible for Tax-Free Childcare, so to if you claim tax credits or if you have older children – childcare vouchers can be claimed up until the age of 15.
Also if you’re divorced or separated only one parent can claim with the new scheme, whereas both can with ESC.
The Tax-Free Childcare Info Hub has a handy calculator to help you decide: Childcare Savings Calculator
What Advantages Does This New Scheme Have Over Childcare Vouchers?
Tax-Free Childcare is available to any eligible working family; it doesn’t require your employer to offer the scheme unlike with childcare vouchers.
It is also available to the self-employed, and will include a ‘start-up’ period for those newly self-employed. During this period self-employed parents won’t have to earn the minimum income level of £50 a week.
The scheme will also be available to parents on paid sick leave, and paid and unpaid statutory maternity, paternity and adoption leave.
Parents with more than one child may be better off with the new scheme as Childcare Voucher savings are limited to £933 per parent, whereas Tax-Free Childcare offers up to 20% per child. This will be especially true if you have high childcare costs.
How Will It Work?
Eligible families will be able to set up an online account and pay into it to cover the cost of a registered childcare provider. The government will top up your account with an extra 20p for every 80p you pay in. You can pay money in on flexible basis, paying more if you want at certain times of the year, for example so you can build up a balance to pay for additional childcare over the summer holidays.
Other people can also pay money into your account – such as generous grandparents.
What Childcare Providers Are Covered By This Scheme?
Our understanding is that the criteria for receiving payment from Tax-Free Childcare will be the same as it is for childcare vouchers. Ofsted registered nurseries, after-school clubs, childminders, holiday clubs, nannies etc.
Currently exact details of when the new scheme will come into force remain sketchy. We will update you when we know more. In the meantime it’s worth considering whether you may want to take advantage of the existing childcare voucher scheme before it’s too late.