We have created an information hub to support our Orange Genie Accountancy clients, our Umbrella Employees and agencies where the the Covid-19 rules and legislation are explained for recruiters, contractors and the self-employed. Click here to find out more>>

Childcare costs – the dawn of a new scheme!

April 28th saw the launch of the government’s new Tax- free Childcare scheme. First announced in 2013, the scheme provides working parents with much needed help paying for childcare. Supported by National Savings and Investments the scheme is open to everyone and does not rely on your employer choosing to offer a Childcare Voucher scheme.

The current/old scheme

Basic-rate taxpayers are able to claim up to £243 worth of vouchers every month. Higher and additional-rate taxpayers can take less (£124 and £97 respectively).

The vouchers have to be used to pay for an Ofsted-registered child care provider for children up to 15.

As the new Childcare Scheme is phased in, the existing Employer Supported Childcare voucher system will be phased out for anyone not already registered for it.

You can choose to remain on the old scheme or switch to the new system but you cannot use both. The old scheme will not be available to new entrants post April 2018.

The new scheme

Parents will be able to open a new childcare account. For every £8 a parent pays into their childcare account, the government will pay in an extra £2. Parents can get up to £2000 government support per child per year towards their childcare costs. They can then use this money to pay their childcare provider. You will be responsible for any costs over £10,000.

Will I be better off on the new scheme?

You will only be able to claim 20% of your child care costs under the new scheme. Some people will be better off under the new scheme, but others, particularly those with smaller numbers of children may be worse off.

Under the old rules, if both parents were working they could have benefited from two lots of child care vouchers, which may have covered more than 20% of costs.

To help you decide what is best for you, we have set out below the key features of the new scheme, along with a look at its advantages and disadvantages.

Key features

  • The scheme will be rolled out to all eligible families initially with children aged under 12 and disabled children under 17.
  • Parents of disabled children can pay in up to £16,000 p.a. with a top up of £4,000.
  • Both parents in household or lone parent must be working at least 8 hours a week at the national minimum wage
  • Parents must be over 16 years old and have earnings just over an average of £115 a week. Any parent with annual income in excess of £100,000 is excluded from the scheme
  • Two parent households must decide who will apply for the scheme. If parents are living apart only one can claim under the scheme
  • Family members and friends can contribute to the scheme, but their contributions do not qualify for the government top up
  • Parents have to register to use the scheme and confirm their eligibility and reconfirm eligibility every quarter. If several children the parent only has to reconfirm for one child and this will be linked to the others
  • The money can only be used for Ofsted regulated childcare in England or similar in Scotland, Wales and NI – nurseries, play schemes, child-minders, nannies and school based care
  • When the child reaches 12 the account can stay open for a further 12 months, then it is transferred back to the parents, less the government top up
  • In other cases, where the parent becomes ineligible, the account will remain open for 2 years before closure and return of funds less the government top up


Benefits of new scheme

  • the tax break is available per child, rather than an absolute limit
  • Higher- rate and additional rate tax payers qualify for the same amount of government help as low earners.  
  • The scheme is available to the self- employed, who cannot currently claim vouchers.
  • £2,000 assistance is available for each child (the family must spend at least £8,000 on childcare for each child to qualify).



Disadvantages of the new scheme

  • To be eligible both parents have to work.
  • Single parents must work to get the benefit
  • The scheme will only be rolled out to children under 12.
  • Families that only use childcare a few days a week, for before and after school care or for holiday clubs would typically have lower childcare costs and are likely to be better off on the current scheme.
  • Entitlement to Child benefit is based on gross annual salaries. As the current  scheme is a salary sacrifice scheme this reduces the overall gross annual salary and potentially means that some parents remain within the thresholds to receive child benefit.



How do you claim the support?

The government has started inviting parents to apply for Tax-Free Childcare beginning with parents of the youngest children first. Check whether Tax-Free Childcare is the best offer for you using the childcare calculator.

The government's contribution to childcare support will be paid directly into an online account you can open through the website. The account will be with National Savings & Investments and you will be given a unique ID.

Parents will only be able to pay their childcare provider from their childcare account if their childcare provider is signed up to Tax-Free Childcare. We are aware that not all childcare providers are up to speed on the new schemes, so check with them that they are able to receive payment this way.

While parents can’t make payments using both Tax-Free Childcare and childcare vouchers, childcare providers who are signed up to Tax-Free Childcare can receive payments from both schemes.

 What if you want to withdraw the money?

You will be able to withdraw funds you have paid into the account, if needed. However, the government would then reclaim its corresponding contribution.

For example, if you withdrew £800, the government would take back £200 of the money it had added.

And there is more good news …

All 3 and 4-year-olds in England already get 15 hours a week, or 570 hours a year of free early education. If their parents are living and working in England, 3 and 4-year-olds may be entitled to 30 hours free childcare from September 2017. An extra 570 hours of free childcare a year, so 1140 hours in total.

The eligibility criteria are the same as the ones for Tax-Free Childcare, except you can continue to get these types of support at the same time as 30 hours free childcare:

  • tax credits
  • Universal Credit
  • childcare vouchers or salary sacrifice schemes
  • childcare grants and bursaries


For more information you can go to https://childcare-support.tax.service.gov.uk/

Request a Call Back


edge promo