Government consultation on tax-free childcare closes soon

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tax-free childcare

A consultation on the Government’s Tax-free Childcare scheme ends on Monday 14th October.  The process asks parents for their views on how one of the biggest government programmes to help working families with childcare costs should be run.

The consultation sets out new detail on eligibility for the scheme, including stating that parents who are not working because they are on parental leave or because they are carers will be able to claim.

The document also proposes that the scheme will be aligned to the school year so that children in the same class are treated consistently and confirms that:

The new Tax-free Childcare scheme will cover 20% – equivalent to the basic rate of tax – of working families’ childcare costs up to a limit of £6,000 per year per child, i.e. £1,200

In the first year of the scheme, starting in Autumn 2015, children born in or after September 2010 will be eligible (i.e. under five and younger five year-olds). This will increase to 6 in the second year, and so on until children under 12 are eligible. Once the scheme has been fully phased in, eligibility will end in the September following the child’s 11th birthday.

To be eligible for the scheme, families will have all parents in work, with each earning less than £150,000 per year, and will not already receive support through tax credits (or Universal Credit in the future) or the current Employer Supported Childcare scheme.

The scheme will be run through online voucher accounts.

Tax-free Childcare will be worth up to £1,200 per child per year. Once fully up and running, the scheme will be available to up to 2.5 million families and will save a typical working family with two children under 12, up to £2,400 per year.

The average cost of a part-time nursery place for a child under two in the UK is now over £5,000 per year.

As well as the usual technical document (available here as a .pdf document), the government is also running the consultation through a simple online questionnaire to make it as easy as possible for parents to respond.

Commenting on the launch of the consultation, Chancellor of the Exchequer, George Osborne said:

This government is on the side of people who want to work hard and get on in life. Tax-free Childcare will help working parents by giving them more choice and better access to the quality, affordable childcare they need.

We want to make the new scheme work in the way that is best for parents, so today we are asking for their views, and I’d like as many parents as possible to tell us what they think.

Chief Secretary to the Treasury, Danny Alexander, added:

The government wants to build a stronger economy and a fairer society and key to that is getting more people into work. We won’t let childcare costs stand in the way of parents’ ability to work if they want to.

Tax-free Childcare will put money in families’ pockets, saving the typical two child family up to £2,400 per year on their childcare costs and allowing parents more choice to work the hours they want.

The consultation seeks views from parents, childcare providers, employers and current and potential future voucher providers on a number of detailed proposals for the design of the new scheme, including that:

While the Tax-free Childcare scheme is being introduced to support only families where all parents are working, there will be some exceptions to this. Parents on paid maternity, paternity and adoption leave will be eligible to continue receiving Tax-free Childcare for any children they already have; and couples in which one parent works and the other is in receipt of contributory Employment and Support Allowance or Carers’ Allowance will also be eligible for the scheme.

The government intends to deliver Tax-free Childcare through online voucher accounts run by private sector voucher providers. The government wants parents to have a choice of voucher providers and for them to be able to switch between them with minimal fuss and cost.

The government is also consulting on the detail of the £200 million additional childcare support that will be available from April 2016 for working families who receive Universal Credit.

It is proposed that the increase in the support through Universal Credit from 70% of childcare costs to 85% will be available to families where the lone parent or both parents each earn above £833.33 in a month – the monthly income of someone who earns above £10,000 and so pays income tax.

The new scheme will be phased in from Autumn 2015, funded partly by the phasing out of the current Employer Supported Childcare scheme, which is only available to parents whose employers offer the scheme.

Employer Supported Childcare will continue for current members, if they want to stay in it and will be open to new joiners until Tax-free Childcare comes in.

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