Tax-Free Childcare – A Saving Grace this Summer?

August 14, 2019 Categories: Business, Cash flow, Expenses, Money, Tax

Ah, the summer. Warm days, long evenings and plenty of fun to be had outside for the entire family.

Yet, if you’re a parent, the summer also brings with it the school holidays and the need for childcare.

The cost of childcare in the UK continues to rise. An annual survey by Coram Family and Childcare has found that prices rose by 3% during 2018, resulting in an average fee of £127 per week for parents.

However, there’s some good news. If you rely on someone else to look after the kids while you work, you might be entitled to tax-free childcare.

 

How does it work?

If you earn more than £131 each week, you might be eligible for tax-free childcare.

The scheme enables you to get up to £500 for each of your children every three months. That equates to £2,000 per year for children under the age of 11. If you have a disabled child under the age of 17, that figure rises to £4,000 per year.

When you get tax-free childcare the government simply pays £2 for every £8 you pay your childcare provider. All you have to do is open an online account for your child, which is used to receive the money from the government.

There’s only one caveat related to your earnings, which is that your income needs to be under £100,000 per year.

 

How do I know if I’m eligible?

Eligibility for tax-free childcare depends on a number of factors:

  • your employment status (you ideally need to be working, but there are circumstances where you can still claim even if you’re out of work);
  • how much you earn (you’ll need to earn a certain amount over three months which is at least the National Minimum Wage or Living Wage, and for 16 hours per week on average);
  • your child’s circumstances and age (they must be under the age of 11 and live with you); and
  • your nationality (you can’t apply if you’re from outside the EEA).

It’s also worth noting that your partner’s employment and income might affect your ability to get tax-free childcare. This is the case if you’re married or in a civil partnership or live together as though you are (i.e. if you’re separated). If your partner is absent or in prison, they won’t affect your eligibility.

The government offers more detail on eligibility on its website.

 

Will my childcare provider accept the scheme?

The tax-free childcare scheme can be used to pay over 58,000 childcare providers in the UK.

These include childminders, nurseries and sports camps that run during the summer. It should therefore be relatively straightforward to find a supplier in your area.

 

What can my employer do?

The government is urging businesses to help their employees sign-up for the tax-free childcare scheme. And there’s quite an incentive to do so.

With the kids off school, attendance at work during the summer inevitably takes a dip as employees book holiday to look after their children and save on childcare costs. By instead taking advantage of tax-free childcare, fewer employees will end up taking leave between July and September.

As Nahid Khan, editor of HMRC’s employer bulletin explains, “Some parents are still missing out on the benefits of tax-free childcare and how it can reduce their childcare costs. We would welcome some help from employers in changing that”.

If your employer hasn’t mentioned this yet, it might be an idea to mention it to the bosses so that other parents working at the firm can take advantage of the scheme.

 

What to do next

It’s estimated that 1.5 million families in the UK are eligible for the tax-free childcare scheme, yet only 125,000 had taken advantage of it by March this year.

Need help with your personal tax planning? There’s lots you can do besides tax-free childcare to protect your earnings, and the friendly team at Chandlers are here to help!