Tax-free Childcare: What you need to know

The government has announced that it will be introducing a new form of childcare support from 2017.

 

Tax-free Childcare will give parents a government top-up of 20% on their childcare spend, up to the value of £2,000 per child per year, based on childcare costs of a maximum of £10,000. Parents of disabled children will benefit from £4,000 per child per year, based on childcare costs of a maximum of £20,000 per child per year.

 

During the roll-out of the government’s Tax-free Childcare scheme, childcare vouchers will remain open to new entrants until April 2018. Importantly, existing users of vouchers will have a choice between the two schemes.

 

The eligibility requirements for vouchers and Tax-free Childcare are different – you won’t be able to claim Tax-free Childcare unless all parents in a household are working or if you are in receipt of tax credits. Vouchers can be used for children up to 1st September following their fifteenth birthday, but Tax-free Childcare will only be available for children up to 1st September following their 11th birthday, or 16th birthday if they are disabled.

 

Furthermore, there are some families who will lose money under Tax-free Childcare, compared to vouchers. While families will be entitled to claim up to £2,000 in support with Tax-free Childcare, the government’s own figures show that on average families will only benefit by £600.

 

With childcare vouchers basic rate taxpayers can salary sacrifice up to £55 per week, generating savings of £933 per parent annually. Higher rate taxpayers can salary sacrifice up to £28 per week, saving up to £623 per parent per year. Additional rate taxpayers can salary sacrifice up to

 

Circumstances

Maximum benefit to family using vouchers

Benefit to family under Tax-free Childcare

Difference

One parent working (basic rate taxpayer), one parent not working.

£933

Not eligible

+£933 under vouchers

Two parents working – both basic rate taxpayers.

Childcare spend of £4,000 per year on one child.

£1,866

£800

+£1,066 under vouchers

Two parents working – both basic rate taxpayers.

Childcare spend of £8,000 per year on two children.

£1,866

£1,600

+£266 under vouchers

Two parents working – both basic rate taxpayers.

Childcare spend of £10,800 on one child.

£1,866

£2,000

+£134 under Tax-free Childcare

Two parents working – both higher rate taxpayers.

Childcare spend of £6,000 per year on one child.

£1,246

£1,200

+£46 under vouchers

Two parents working – both higher rate taxpayers.

Spending £1,000 per year on childcare for a child aged between 12 and 15.

£1,246

Not eligible

+£1,246 under vouchers

Two parents working – both additional rate taxpayers. Childcare spend of £6,000 per year on two children.

£1,244

Not eligible

+£1,244 under vouchers

Self-employed single parent, spending £10,800 on childcare per year on one child.

Not eligible

£2,000

+£2,000 under Tax-free Childcare

 

These are illustrative examples only. For full information about which scheme you will be better off under contact your voucher provider today.