Tax-Free Childcare 2017 – what you need to know

Changes to help with childcare costs from 2017.

 

Tax-Free Childcare is a new scheme which will be phased in from 28 April 2017 and will offer working families 20% support towards qualifying childcare costs.

For every £8 you pay into a Childcare account, the government will pay in £2. It will put in a maximum of £500 every three months for each child – or £1,000 if your child has a disability.

This will operate through an online Childcare account, provided by National Savings & Investments (NS&I) in partnership with HM Revenue and Customs (HMRC), which parents and government can pay money into. The money will then be paid directly from this one account to your childcare provider.

The government has introduced a new scheme called Tax-free Childcare that allows parents to apply for payments that cover 20% of childcare costs. From 21st April 2017 the scheme is open to parents of children under 4 and parents of disabled children.

Before the end of 2017, the scheme will be expanded to also include parents of children up to the age of 12. It will be available to all eligible families by the end of 2017, rolled out throughout the year, based on children’s ages – starting with parents of youngest children and prioritising children with disabilities.

To be eligible for the Tax-free Childcare Scheme, you must be working (and if you have a partner they must work too), and you must not be receiving support through Tax Credits or  Universal Credit.

If you work but your partner is unable to work because they are disabled or care for a disabled person, you are eligible for the Tax-free Childcare Scheme.

To support newly self-employed parents, the government is introducing a ‘start-up’ period. During this, self-employed parents won’t have to earn the minimum income level, £50 a week.

The Tax-free Childcare Scheme is not available to parents where either a single parent or either member of a couple earns over £100,000.

The government contributes 20% of childcare costs, with the maximum help set at £2000 per year per child (or £4000 if the child is disabled). It’s called the Tax-free Childcare Scheme because 20% is the basic rate of income tax.

It will work by parents paying money into an account with a childcare voucher provider, which the government then tops up. For example, if you put £80 into the account, the government will put in £20.

Usually both parents in a couple must work on an employed or self-employed basis and have an income of at least 16 times the minimum wage per week.  Self-employed people will be allowed start-up periods where this income level doesn’t have to be met.

Periods on maternity leave, sick leave, paternity leave, parental leave, adoption leave and shared parental leave will count as being in work.  However, eligibility is limited to the last 14 days of leave where parents are claiming for a new child, whose birth or adoption led to the time off.

You can choose to pay in more in some months, and less at other times, meaning you can build up a balance in your account to use at times when you need more childcare than usual, for example, over the summer holidays.

It’s also not just the parents who can pay into the account – if grandparents, other family members or employers want to pay in, then they can too.

If your circumstances change or you no longer want to pay into the account, then you’ll be able to withdraw the money you have built up. If you do, the government will withdraw its corresponding contribution.

If you currently receive Employer-Supported Childcare then you do not have to switch to Tax-Free Childcare if you do not wish to.

Employer-Supported Childcare will continue to run, and registered parents will be able to use it for as long as their employer offers it. Employers’ workplace nurseries won’t be affected by the introduction of Tax-Free Childcare.