What settings should know about the Tax-Free Childcare scheme

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The Tax-Free Childcare scheme will be launched from early 2017 and will offer working families 20% support towards qualifying childcare costs. The new scheme will be open to almost two million households in the UK and will be delivered by HM Revenue and Customs (HMRC).

How will it work?

Parents will pay their childcare costs into a Tax-Free Childcare account and the Government will ‘top-up’ the account with a 20% contribution. So, if parents add £80 into their account, the Government will contribute £20. This money will then be paid directly from the account to the childcare provider. 

Parents who join the scheme will be able to save themselves up to £2,000 per year per child on their childcare bill, however only those parents who pay childcare costs of £10,000 per year per child will be able to benefit from the maximum saving amount.

The scheme applies to parents with children up to the age of 12. It will also be available for parents of children with disabilities up to the age of 17.

Who can access it?

Any eligible working family can use the Tax-Free Childcare scheme – it doesn’t rely on employers offering it. However, to qualify, parents will have to be in work, each earning at least £115 a week and not more than £100,000 each per year.

Self-employed parents will be able to get support with childcare costs in Tax-Free Childcare, unlike the current scheme (Employer-Supported Childcare) which is not available to self-employed parents. As well as this, it will cover parents if they are:

  • Working part time
  • On maternity, paternity or adoption leave
  • Starting their own business.

What will happen to the old scheme?

The Childcare Voucher Scheme will remain open to new entrants until April 2018. After this point, only parents who are members of the scheme will be able to continue using Childcare Vouchers. Parents already registered by this date will be able to continue using it for as long as their employer offers it.

Can parents belong to both schemes?

Parents must opt to belong to only one scheme – either Childcare Vouchers or Tax-Free Childcare. If parents are unsure about which scheme is more beneficial for them, they can contact the Employers For Childcare’s Family Benefits Advice Team for a free calculation on 0800 028 3008.

What do childcare providers need to do?

If parents using your setting want to join the Tax-Free Childcare scheme, you’ll need to register with HMRC. You can either choose to register now or wait until the scheme begins, but you need to bear in mind that it can take 12 weeks for your registration to be processed.

Important points to remember

  1. A saving of £2,000 per child is the maximum amount available. In order to make this saving, parents need to have a childcare bill of £10,000 per child per year.
  2. Parents cannot claim any Tax Credits while using the Tax-Free Childcare scheme. However parents using Childcare Vouchers can still claim these.
  3. Parents don’t have to switch to Tax-Free Childcare if they don’t wish to.
  4. Only couples where both parents are working can join the Tax-Free Childcare scheme.

Childcare providers can find out more information about the scheme and download promotional information packs for parents here.

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