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Personal finance: How to claim tax-free child care

Most families will be better off under the new scheme: the saving of up to �2,000 per child compares favourably to the existing childcare vouchers scheme. Picture: Contributed

Most families will be better off under the new scheme: the saving of up to �2,000 per child compares favourably to the existing childcare vouchers scheme. Picture: Contributed

  • by JEFF SALWAY
 

1) How much?

The UK government has now published details of the new tax-free childcare scheme, announced in the 2013 Budget and set to be introduced during the autumn of 2015.

In brief, for every 80p that parents (or grandparents, other family members – even employers) transfer into a new, online voucher account, the government will top this up with a further 20p, up to a maximum of £2,000. It will be available for all children up to the age of 12, and up the age of 17 for children with disabilities.

2) How do I qualify?

Parents – or one parent in a single-parent family - must be working, with each earning at least £50 per week but not more than £150,000 a year, and not in receipt of tax credits. Consequently, two-parent families where just one parent works, won’t be eligible for the scheme. The new scheme will eventually replace the existing childcare vouchers scheme, which can only be made available by employers and so relies on employers being prepared to offer it. A consequence of this is that the new scheme will be open to the self-employed, whereas they haven’t been able to benefit under the existing scheme.

3) Will I actually be better off?

Most families will be better off under the new scheme: the saving of up to £2,000 per child compares favourably to the existing childcare vouchers scheme, which is limited to each parent, and typically saves about £900 for a basic rate taxpayer, and about £1,800 where both parents work and both pay tax at the basic rate.

4) How does it work?

Employers will still be able to offer childcare vouchers under the existing scheme, to parents already registered with them at the time the new scheme is introduced, but as most families will be better off under the new scheme, those claiming childcare vouchers will probably switch to the new scheme. Parents will have an online log-in service to communicate with HMRC and view accounts for all of their children at once.

5) What if I don’t qualify?

Couples where only one parent works will be better off under the existing scheme, as they won’t qualify under the new scheme, and so the employed parent will still want to continue claiming childcare vouchers for as long as their employer continues to offer them.

• Tax expert David Boyd is a partner at business advisers and accountants Scott-Moncrieff.

 

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