Tax Free Childcare

Tax-Free Childcare (TFC) has become a hot topic for employers and employees. Replacing the existing Childcare Voucher scheme in early 2017, Tax-Free Childcare will be available to around 2 million households to help with the cost of childcare.

Parents will be able to pay money into their Tax Free Childcare account and the government will top up the account with 20% of childcare costs up to a total of £10,000, the equivalent of up to £2,000 per child per year (or £4,000 for disabled children). 

This will be applicable for children up to the age of 12 although the scheme will be applicable to children with disabilities up to the age of 17.

As the new scheme is not employer supported, self-employed workers are eligible and can also benefit.

But, how does Tax-Free Childcare work? How does it differ from the existing Childcare Voucher Scheme? And what does it mean for employers and employees?

With the scheme launching 2017 it will be gradually rolled out to families, with parents of the youngest children able to apply first. 

Many questions are being asked, so we have created a few FAQs for you to get your head around it.

What will happen to the current Childcare Voucher Scheme?

The current system will remain in place for those parents who are currently using it, but parents will no longer be able to join the existing scheme from April 2018.

How is the money paid?

Parents will be able to open an online account, which they can pay directly into to cover the cost of childcare with their chosen registered provider. The online accounts will be available through the government website, gov.uk.

How much will the government contribute?

For every 80p you or someone else pays in, the government will add an additional 20p. The 20p top up is equivalent to the tax most people pay (20%).  The government will top up the account with 20% of childcare costs up to a total of £10,000, which is the equivalent of up to £2,000 per child per year (or £4,000 for disabled children).

What is the eligibility criteria for Tax-Free Childcare?

To qualify, parents must be in work, and each earn around £115 per week, and no more than £100,000 each per year.

To get the new Tax Free Childcare support, both parents in a two-parent household should be working, or the lone parent in a single parent household. Parents need to be working for a minimum of 16 hours per week.

For the first time, self-employed parents will have also access to the Tax Free Childcare support. 

Parents who are claiming tax credits or Universal Credit will not be able to claim under the new system.

The scheme will also be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.

How old can my children be?

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

What will happen to the existing Childcare Voucher scheme?

The current Childcare Voucher scheme will be closed to new joiners from early 2017, and new parents wishing to join will be enrolled on the new scheme.

What happens if I use a workplace nursery?

Employers’ Workplace Nurseries are not affected by the new TFC scheme.

What scheme am I better of using?

Some parents will make greater financial savings on the existing Childcare Voucher scheme, while others will make greater savings by switching to the new TFC when it comes into effect.

If you have the choice between schemes and to find out which will provide greater savings for your family, a Childcare Savings Calculator can be found at the following link http://www.tax-free-childcare.info/childcare-savings-calculator/

What happens once on the new scheme?

Once you are registered, you can pay into your childcare account as and when you like.  Other family members, friends and employers can pay into the account too if they wish which gives you greater flexibility to pay more in some months.

You can also build up the balance in the account for times when you may need additional support with childcare for example – summer holidays.

Will the process be simple?

The process will be as simple as possible, you will re-confirm your circumstances every 3 months via a simple online process, and there will also be a simple log in service where parents can view accounts for all their children at once.

Can I withdraw money from my account?

If you have paid more than intended or your circumstances change you wish to withdraw money from the account, you will be able to do so. The government will also withdraw its corresponding top-up contribution. 

We hope this has been helpful for you and if you have any more questions, either employer or employee feel free to contact us on info@chrysalispayroll.co.uk.