New ‘Tax-free Childcare’ Scheme
Background
‘Tax-free Childcare’ is a new government scheme to help working parents with the cost of childcare. It will be introduced on 28 April 2017 for parents of children under two, and will then gradually be rolled out during 2017 for children up to the age of 12, or up to the age of 17 for children with disabilities.
It is intended that the new scheme will replace the current employer-supported childcare for newly eligible parents. The current system of employer-supported childcare will continue to run as before, and will remain open to new entrants until April 2018. Parents registered in an employer-supported scheme by April 2018 will be able to continue to use it for as long as the employer continues to operate the scheme. There is also no obligation for those in an existing employer scheme to switch to the new government scheme, but a parent cannot take up the new government scheme if they remain in an employer-supported childcare scheme.
The new scheme is intended to be available to more families since it will not rely on employers making the option available and in addition self-employed parents will also be eligible to benefit.
Details
Tax-free childcare is being introduced to help parents with the cost of:
- Registered childminders, nurseries and nannies;
- Registered after-school clubs and playgroups;
- Registered schools; and
- Home careworkers working from a registered home care agency.
Parents will be able to open an online ‘tax-free childcare’ account, which they can then use to pay for childcare from a registered provider.
For every £8 paid into the online account by a parent, the government will pay in an additional £2. Parents can receive up to a maximum of £2,000 per child, per year, or £4,000 for disabled children.
To qualify for the scheme parents will need to be in work, both earning at least £120 per week, and not earning more than £100,000 each per year. Self-employed parents can also join the scheme, and for newly self-employed parents the government has introduced a ‘start-up’ period during which they will not be required to earn the minimum income level. The scheme will also be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.
Paying into the online account is designed to be flexible so that parents and others, including family members, will be able to pay money into the account as and when they want to. This provides the option of building up the available balance for use at times when more childcare may be required, such as school holidays.
Parents will need to re-confirm their circumstances every 3 months using a simple online process, and there will be a simple log-in service where parents can view accounts for all their children at once.
The money built up in the childcare account will be available to be withdrawn if family circumstances change, or parents no longer wish to pay into the account, however, the government will withdraw its corresponding contributions as a result of such a withdrawal.
For more information on the above, please contact our Tax Director Jenny Marks.
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