The introduction of the government’s Tax- free Childcare scheme begins on 28th April 2017, for parents of the youngest children and will gradually be rolled out over 2017. When it is introduced, it will support parents' childcare costs and replace the existing Employer Supported Childcare.
More information is available on the child care choices website.
Unlike the current voucher scheme, it will not rely on your employer choosing to enrol - instead it will be available to all qualifying families.
The key features of the scheme are as follows:
Under the scheme you will pay 80% of childcare costs per eligible child, with the remaining 20% paid by the government per annum. The maximum amount the government will pay is £2,000, and you would have to pay in £8,000 yourself for that amount. You will be responsible for any costs over £10,000.
The scheme will cover children with disabilities until they are 17.
The government's contribution to childcare support will be paid directly into an online account you can open through the website.
You will also have to pay your contribution into this account, with the flexibility to pay in whenever you like. For every 80p you contribute, the government will add 20p.
The accounts will be run by National Savings & Investments and you will be given a unique ID. You can use the money paid into the account by you and the government to pay the registered UK childcare provider of your choice, as the new system will not be administered by employers.
You will be allowed to continue to claim under the Tax Free Childcare scheme while you are on paid leave - including sick leave and maternity or paternity leave. However, you can only claim for children eligible before you began that leave. You will not be able to claim during any unpaid leave.
You will be able to withdraw funds you have paid into the account, if needed. However, the government would then reclaim its corresponding contribution.
For example, if you withdrew £800, the government would take back £200 of the money it had added.
As the new Childcare Scheme is phased in, the existing Employer Supported Childcare voucher system will simultaneously be stopped for anyone not already registered for it (although the government has recently announced that the closure of the existing Employer Childcare Scheme has been delayed for six months following its proposed closure date of 5th April 2018. )
Parents that already claim ESC vouchers will need to choose between continuing to do so and the new childcare scheme (worth up to £2,000 per child); however, the old system will close to new claimants.
If you are running your own company and are making a claim for one child in full, then you need to consider whether you will be better off remaining in the old scheme prior to the mandatory transition to the new scheme.
However, the scheme has its drawbacks and many will not benefit. Here, we compare it to the current system and answer your questions.
The new scheme that is more generous to larger families. This is because the tax break is available per child.
Working parents will be able to claim vouchers to subsidise nannies or child care for every child under five and subsequently it will apply to all under -12s.
Higher- rate and additional rate tax payers qualify for the same amount of government help as low earners.
The scheme is good news for the self- employed, who cannot currently claim vouchers.
To receive the full £2,000, the family must spend at least £8,000 on childcare for each child.
It disadvantages those families where one parent stays at home. Only households where both parents work will be eligible. The policy ignores the interests of parents who choose to stay at home to look after their children. Single parents must work to get the benefit.
Basic-rate taxpayers are allowed to buy £243 worth of vouchers every month, but higher and additional-rate taxpayers can take less (£124 and £97 respectively), which limits their gains. The maximum annual gains for new entrants paying higher or additional-rate tax are £620 and £600 respectively.
Once you have received the vouchers, you can use them to pay for any Ofsted-registered child care for children up to 15.
Parents already claiming vouchers can continue to receive this support or switch to the new system. New parents will only have access to the latter scheme.
If you change employers, however, then you would be obliged to enrol in the new scheme.
The old scheme is more beneficial, specifically, for higher-rate taxpayers but only if they joined before April 6 2011.
You will only be able to claim 20pc of your child care costs under the new scheme. Some people will be better off under the new scheme, but others, particularly those with smaller numbers of children will be worse off.
If both parents were working, previously, they could have benefited from two lots of child care vouchers – which may have covered more than 20pc of costs. Likewise, those parents who work part time and take the full amount of vouchers from their salary to cover a small amount of childcare are likely to be worse off.
The vouchers are currently worth up to £55 a week, or £243 a month. The saving in tax and national insurance contributions adds up to £933 a year, and because both parents can claim, the total saving can be almost £2,000 a year. Under the original plans for the new scheme all working couples with one child would have been worse off, but by raising the initial cap on costs from £6,000 to £10,000 the government has ensured that some parents can claim more.
