Tax-Free Childcare and additional help for costs

Childcare costs can take up a considerable chunk of any family budget. For families with several children, these costs can far exceed mortgage or rental outgoings. In the UK, the average cost of sending a child under two to nursery part time is £116.25 a week. For full-time hours, this rises to £222.36.

However, there are a number of options and government schemes available to help parents cover the cost of childcare.

Tax-Free Childcare Scheme

Tax-Free Childcare is the latest government scheme to help working parents with the cost of childcare. It launched at the end of April and is currently being rolled out to parents with children under 4.

How it works:

  • As part of the scheme, a parent opens up an online account, which they pay into to cover the cost of childcare.
  • For every £8 a parent pays into the account, the government will pay in an extra £2. Parents can receive up to £2,000 per child, per year, towards their childcare costs. A higher limit of £4,000 applies for disabled children.
  • To qualify, parents and partners in the household need to be in work, earning more than £120 a week, and not more than £100,000 per year.
  • The scheme will be available for children up to the age of 12, or 17 for children with disabilities. All eligible parents will be able to join the scheme by the end of 2017.
  • Tax-Free Childcare is available to ALL eligible workers, including the self-employed.
  • It’s not just parents who can pay into the account – grandparents, other family members and employers can all pay in as well.
  • The funds can be withdrawn for additional purposes if necessary, although the government will deduct its corresponding contribution.

Childcare Voucher Scheme

Childcare vouchers work as an employee benefit for eligible working parents. They are a government approved and tax-efficient way to pay for childcare.

How it works:

  • When you join the scheme, you exchange up to £243 a month of your gross salary for childcare vouchers – this is called a ‘salary sacrifice’. This amount is tax-free and exempt from National Insurance contributions, saving a parent up to £933 a year.
  • Both parents can take advantage of the vouchers scheme, saving a family up to £1,866 a year.
  • The vouchers can be used to pay for a wide variety of childcare, including nurseries, nannies, out of school clubs and some activity holiday companies.
  • While most parents, or those with parent responsibilities, are eligible, you can only join the scheme if your employer offers it.
  • New entrants can join their company’s scheme until April 2018. Existing members have the option to remain in their scheme or to change over to Tax-Free Childcare once their child becomes eligible.
  • It is not possible to be enrolled in both childcare schemes at the same time.

Which scheme is best for me?

The government have provided a childcare calculator to give you an estimate of how much support you could receive for approved childcare and to help you determine which options and schemes to enrol in.

Tax-Free Childcare

  • A maximum gain of £2,000 per child, per year
  • 20% off childcare costs
  • The best option for more kids and higher childcare costs

Childcare Vouchers

  • A maximum gain of £930 per parent, per year
  • No tax or NI to pay on childcare costs
  • The best option for fewer kids and lower childcare costs.

30 hours of free childcare

In addition to the above schemes, the government also offers free early education. Currently, all 3 and 4-year-olds in England receive 570 hours a year of free childcare. This equates to 15 hours a week during term time, or 11 hours a week spread throughout the year if your provider allows.

From September 2017, 3 and 4-year-olds may be entitled to an additional 570 hours, for a total of 30 hours a week during term time. Parents must be living and working in the UK to be eligible, and you can continue to get the following support while receiving the free hours:

  • Tax credits
  • Universal Credit
  • Childcare vouchers
  • Tax-Free Childcare

For more information on tax-free savings options, please get in contact with a member of our Tax Services Team or call 01903 234094.