Tax free childcare – what can you claim

Tax free childcare – what can you claim

One childcare scheme ends soon and another has started

The Government Childcare voucher scheme enables parents to save up to £933 a year on childcare.  It was supposed to be closed to new members on 06 April 2018, and replaced by the new Tax-Free Childcare.

The Childcare Voucher scheme has had its deadline extended for new members by another six months through to October 2018.  Both schemes reduce the cost of childcare but one may suit your circumstances better.  Also, the vouchers are not offered by all employers so you could miss out in that way.

Of course as with all schemes like this, the choice is not simple and many parents would do better to stick with childcare vouchers, whereas some current voucher users will in fact be better off with the new scheme.

Tax-Free Childcare benefits may be better for self-employed people and parents with high childcare costs, but may also leave some basic-rate taxpayers and single parents worse off.

What is the difference between the 2 schemes?

Tax-Free Childcare offers savings per child per year.  Parents can claim childcare tax credit, or pay for childcare vouchers out of their salary before tax

Childcare vouchers offer savings per parent per year.  Each parent can get up to £55 each week from their salary before tax and National Insurance, or £243 a month, to spend on childcare.  This is not dependent on how many children you have, as long as the parent is a basic-rate taxpayer. This saves parents up to £933 a year.

There are no eligibility checks – the scheme is available to parents or those who have responsibility for a child as long as their employer offers it.

What savings can you get by buying childcare vouchers?

The new Tax-Free Childcare initiative is more like a savings scheme.

Parents have 20% of their childcare costs each year met by the Government, up to a limit of £2,000 a year per child, or £4,000 where a child is registered disabled.

The main difference for taxpayers from the old voucher scheme is that self employed people can also use it, subject to some eligibility rules.  Particularly both parents (if they are together) must be working 16 hours a week and paid at least the national living wage.

Tax-free childcare is not available to anyone who is claiming tax credits or universal credit.

At the other end of the pay scale, if either parent earns more than £100,000, both parents are disqualified.

You cannot use both childcare schemes at the same time. But if you have children aged three or four you can use one of the schemes alongside 15 or 30 hours of free childcare.

Should you go for the old voucher scheme or new tax-free childcare?

As you would expect, this depends on your situation. Under the new scheme the losers will include families where one parent works and the other does not – they can claim vouchers, but will not be eligible for tax-free childcare.

There may also be difficulties for divorced couples. Parents can buy childcare vouchers through their own employer, but Tax-Free Childcare allowances are per child – so some negotiation may be needed.

Families in the basic-rate tax bracket who qualify for either scheme and spend less than £9,336 in total on childcare would be better off with vouchers. The same is true for those who pay the higher rate and spend less than £6,252 in total.

Conversely, families with many children are likely to benefit from Tax-Free Childcare, as the new scheme applies on a per child basis rather than per parent.

If you have money to save and spend large sums on childcare, Tax-Free Childcare is likely to be better for you, as you can get up to £2,000 a year per child, whereas under the voucher system the maximum you can save per parent is £930 a year.

What should you do now?

If you can, the best thing to do is to sign up for the voucher system now and start benefiting as early as possible.  If the new Childcare system is better for you, you can then switch to it later on.

Families with the youngest children will be eligible first, and families must have at least one child under 12.  Also note that vouchers can be used until the September after the child’s 15th birthday.

What else should you consider?

Receiving childcare tax credit disqualifies you from claiming tax-free childcare under the new system. That might also mean that you are better off not using childcare vouchers either.

This is because some people will get a proportion of their childcare free using tax credits.  However they have to pay for it in cash.  If they buy and use vouchers to pay for childcare instead they won’t get the free benefit.

Nobody said having children, or caring for them was easy.  However with a bit of advice and planning you can reduce the costs of childcare.  As ever we caution you to research this carefully, and get advice based on your own circumstances.

For further advice existing clients email us at support@anytime.uk.com or call 03333 110 230

For new enquiries contact us now

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