Tax Free Childcare – what does it mean for me?

by ParentalChoice
in Working Mum, Working Dad, Financial Planning, Childcare
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Since April 2017 the Government has launched a new system called Tax Free Childcare offering a new form of childcare vouchers and also increased free childcare hours. With so many questions from our clients about the new system, we have decided to look at them in more detail and provide you with a list of the facts.

Childcare Vouchers

Tax-free Childcare is the new online service from the Government to help parents with funding towards the cost of childcare. Company Childcare Vouchers will become known as “Employer Supported Childcare” and Tax-Free Childcare will eventually replace the childcare voucher scheme. The way it works is that the government will pay £2 into the account for every £8 paid by the parent, into the account. This is equal to a maximum of £2,000 every year. Parents will then be able to pay their childcare provider (Nursery, Childminder or Nanny) directly from this account. The childcare provider must also be set up on the system and will need to be Ofsted registered.

Are you eligible for new government scheme?

• Both parents working
• Both earn over £120 per week
• Self Employed

• Either Parent earns over £100,000 per annum
• Two-parent households when only one parent works

Should I remain in my company childcare voucher scheme?
If you don’t meet the eligibility criteria above and your Company offers childcare vouchers then definitely yes!

If you are already signed up to a company scheme then probably yes! Employer run schemes have the benefit of being very simple to join and administer as an employee with excellent support systems either through the company direct or the childcare voucher provider and thus many may favour this system unless there are much greater financial benefits in changing.

If you are already supported by your employer supported childcare voucher scheme, you will not be able to use both options at the same time and must decide which is best for you. Corporate Childcare voucher schemes will be open to new entrants only until April 2018 and will remain running until the Company decides to stop offering such a benefit.

15 hours Free Childcare

All children, in England, aged 3 and 4 are entitled to 15 hours free childcare. This is available at participating nurseries, pre-schools, childminders and sure start centres and from 1 January , 1 April or 1 September following your child’s 3rd birthday. Parents are asked to sign a form to confirm that you are not getting 15 hours from somewhere else but the it is the childcare provider that needs to register with the local council to claim the money (as it is paid directly to them from the local council). Your nursery or childcare provider will inform you as to when you can take these 15 hours and they are only applicable for 38 weeks a year.

30 hours Free Childcare

There are changes due in September 2017 to the free childcare entitlement for 3-4 year olds. To date, all children aged 3-4 years are entitled to 15 hours’ free childcare and this is not changing. The Government has been planning to increase this to 30 hours for a number of years and until now it has only been trialled in a number of areas. Later this year it will be rolled out across the country.

Will my child be entitled to the additional 15 hours?
Again both parents must be working – or the sole parent is working in a lone parent family. Each parent has to earn, on average, a weekly minimum equivalent to 16 hours at National Minimum Wage or National Living Wage (over £120 per week). Each parent must have an annual income of less than £100,000; and must live in England.

Does free really mean free?
As with the 15 hours, the 30 hours free is only for 38 weeks a year (roughly in line with school terms) and therefore if you use a nursery offering 50 week cover you will receive less than 30 hours free a week and you will receive an invoice for the extra hours you receive. In addition nurseries can charge for “optional extras” such as food or extra-curricular activities. They can also set restrictions as to when the hours can be used which might not fit with a parent’s requirements.

Will Nurseries offer 30 hours free?
Most will but there may be limitations. Within the nursery industry there has been a lot of concern that the new scheme will provide them with financial issues as the money they receive from the government does not cover their costs. Nurseries will not be able to charge extra fees for the 30 hours but as explained above you may find that they start charging for extras, such as food, or structure their hours in a way that you are still liable to pay for certain attendance.

Plan Ahead
It is important to fully understand the financial implications of such changes, discuss with your nursery their plans, and check whether you would be eligible.

What Next?

Many parents will be better off under the current system but new Tax Free childcare WILL provide savings for some parents. Therefore we encourage you to use the government calculator to help calculate what you are entitled to based on your personal information. For parents with a child who is 3 on 31st August 2017 you can register now for Tax Free Childcare and the 30 hours but other parents can register to be contacted when it is further rolled out. As this is a new system (and we encountered many issues ourselves when registering with the system so we do understand it is not the most user friendly if you want immediate answers) we believe it will take time to settle into understanding whether you benefit and how it will work for all parties. At Parental Choice we will seek to keep our clients updated as to further developments and updates with this system and the financial benefits available to working parents.

Further Information
Childcare Choices – what is available

Check what help you can get with childcare

Childcare Vouchers: better off calculator

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