Tax-free childcare is part of the government’s long-term plan to support working families and will provide up to 1.8m families across the UK with up to £2,000 of childcare support per year, per child, via a new online system. Sarah Laing looks at the latest developments.
The government first announced in the 2013 Budget that a new childcare scheme would be introduced to support working families with their childcare costs. It was originally planned that the scheme would launch in autumn 2015, but as a result of a direct legal challenge from a small group of childcare voucher providers, development of the scheme was suspended. However, the Supreme Court has recently ruled that government proposals for delivering tax-free childcare are lawful, which means that the scheme can go ahead and is now expected to launch in 2017.
Eligibility
The scheme will be available for children up to the age of 12, and for children with disabilities up to the age of 17.
To qualify for tax-free childcare, parents will have to be in work, earning just over an average of £50 a week and not more than £150,000 per year. Unlike the current rules for employer-supported childcare, eligibility for tax-free childcare is not dependant on the employer offering the scheme. It will be available to any working family, provided they meet the eligibility requirements.
Self-employed parents will be able qualify for tax-free childcare, unlike the current employer-supported scheme, which is only available to employees. To support newly self-employed parents, the government is introducing a ‘start-up’ period. During this period, there will be no minimum income level requirement.
The scheme will also be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.
Online accounts
Anyone wishing to use the scheme will need to open an online account via the government website (GOV.uk) and pay in money to the account to cover the cost of childcare with a registered provider.
The government will top up accounts with 20% of childcare costs, up to a total of £10,000 - the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children). So, for every 80p invested, the government will top up with a 20p contribution.
The scheme is designed to be as straight-forward and flexible as possible. HMRC will re-confirm a claimant’s circumstances every three months via a simple online process. There will also be a simple log-in service where parents can view accounts for all of their children at once.
It is also worth noting that anyone can pay into the account, not just the parent. This means that grandparents, other family members or employers can pay in if they wish.
Where circumstances change, and the parent no longer wishes to pay into the account, it will be possible to simply withdraw any funds that have built up. However, where funds that have already attracted tax relief are withdrawn, the government will also withdraw its corresponding contribution.
Switching to tax-free childcare
Switching to the new scheme will not be mandatory and the existing employer-supported childcare rules will continue to operate, at least for the foreseeable future. However, parents will not be able to register for employer-supported childcare after tax-free childcare is introduced, but those already registered by this date will be able to continue using it for as long as their employer offers it.
Employers’ workplace nurseries will not be affected by the introduction of tax-free childcare.
Practical Tip:
There are no particular rules regarding when and how much can be saved in the new accounts. The scheme is designed to give as much flexibility as possible regarding savings. This means that parents can build up a balance in their account to use at times when they need more childcare than usual, for example, over the summer holidays.
