The roll-out of tax-free childcare happened in stages with parents of the youngest children eligible first. With the roll-out now complete, the scheme is open for any parents with children aged 11 or under.
Here’s what you need to know:
- Any parent with more than one child will be able to sign up to cover all their children as soon as their youngest child becomes eligible.
- You’ll need to set up an online childcare account via Childcare Choices to use the scheme – and you’ll be able to transfer money in from your bank as you would any other ‘savings’ account. Only one parent can open the account – though both can, of course, use it – so you’ll need to decide in whose name you open it.
The Government will then top it up with the extra cash the same day. So put in £80 on Monday, and it should be boosted to £100 hours later. However, you must let the funds clear overnight before you can use them to pay for your childcare. Others, such as grandparents or family friends, can also put cash in.
- You’ll be able to spread the cost of childcare, i.e., pay in more some months, for example, to cover the cost of the extra childcare needed during holiday periods. However, be aware that parents can only get a maximum top-up of £500 every three months – this affects those with higher childcare bills.
If you have seasonal childcare costs, put money into the account throughout the year, accruing the full top-up as you go. Then, spend it only when you need to – thus avoiding the £500 three-month limit.
- Every three months, it’s also necessary to ‘reconfirm’ your eligibility. You need to do this using your childcare service account, and simply have to click a box saying your circumstances haven’t changed.
The Government says you’ll be reminded to do this in a message, four weeks before each reconfirmation deadline.
Childcare could be any breakfast club, nursery, playgroup, nanny, childminder or au pair – the crucial element is that your provider must also be registered with a regulator such as Ofsted, the Early Years Register or the Childcare Register to count as childcare under the scheme.
However, they must also be registered with the new tax-free childcare scheme for you to be able to sign up. It’s worth checking with your provider that it is registered or in the process of registering now, so it’s ready for when you can open a tax-free childcare account.
Your provider will then appear on the Childcare Provider Checker – when you eventually log in to your account you’ll be able to see details of all registered providers. If your provider’s on there, you’ll be able to send payments directly through your account to the provider’s bank account via the BACS system.
Tax-free childcare gives eligible families up to £2,000 free per child towards childcare costs. It was designed to replace the childcare vouchers scheme and launched in April 2017.
The scheme is designed so that for every 80p you put in, the state will add 20p – so it effectively gives you basic-rate tax back on what you pay, hence the scheme’s name.
In total you’ll be able to use the scheme to pay for up to £10,000 of childcare per child each year – so you could get an extra £2,000 per child (up to £4,000 if your child is disabled) each year.
Tax-free childcare is open to all qualifying parents, unlike childcare vouchers, which can only be used by people who signed up to the scheme before it closed.
If you are self-employed, you’ve previously not been able to take advantage of Government schemes to cut the cost of childcare, but the tax-free childcare scheme is open to those who work for them selves, and anyone else who’s not getting childcare vouchers, and allows them to take advantage of the 20% tax perk.
However, if you have a partner, you both need to be in work to qualify – so if you’re self-employed and your partner doesn’t work, you won’t be able to take advantage.
You can also take advantage of the tax-free childcare scheme if you’re a single parent.
The scheme’s available to parents of children up to and including the age of 11 (or until they turn 17 if you’ve children with disabilities).
To qualify, you (and your partner, if you have one) need to be working and earn a minimum of the equivalent of 16 hours per week at the national living or minimum wage (currently £125.28 per week if you’re over 25).
You can work less than 16 hours per week as long as your weekly income is more than the £125.28 per week minimum. If you’re self-employed and your income varies hugely on a weekly basis it won’t matter; as long as your three-monthly average meets the £125.28/week minimum, you’ll be eligible.
If you’ve been self-employed for less than 12 months, the minimum income requirement doesn’t apply to you.
You also need to earn less than £100,000 a year – this applies to both, so if one earns more then, as a couple, you can’t access tax-free childcare. It will also be available to parents on paid sick leave.
If you’re on paid and unpaid statutory maternity, paternity and adoption leave, it still counts as being in work, so you can still benefit from the scheme as long as you’ll be back to work within 31 days. You can’t apply for the child that you’re on parental leave for, but you can apply for other
Although the rules say both parents need to be in work, you’ll still be eligible for a childcare account if you or your partner is in work and the other is not able to and receives any of the following benefits:
- Incapacity benefit or long-term incapacity benefit
- Severe disablement allowance
- Carer’s allowance
- Contribution-based employment and support allowance
- National insurance credits (because of incapacity or limited capability for work)