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School holidays can be the sharp end of expensive childcare but a new scheme might be able to help
As any working parent knows, balancing company commitments with childcare can be a tricky exercise, involving elaborate routines and precision planning – particularly during the school holidays when costs for parents can soar by up to 80 per cent.
Childcare costs are notoriously high in the UK, with the average charge for sending a child under two to nursery equating to £127 per week for 25 hours (part time). As a proportion of a family’s net income, on average 33% of outgoings will go towards paying for childcare. This is up to 29% higher compared with other countries in Europe.
However, savings can be made. The introduction of Tax-Free Childcare, which replaced childcare vouchers in 2018, has meant families can get up to £2,000 per child, per year to help cover childcare costs.
Here, Declan McCusker, a tax specialist at Perrys Chartered Accountants in London, explains what every parent needs to know about Tax-Free Childcare.
Tax-Free Childcare is a scheme set up by the UK government to help working parents with childcare costs. If you are eligible for Tax-Free Childcare you can get up to £500 every three months (£2,000 per year) for each of your children to help towards childcare bills. The government will pay £2 for every £8 paid to a childcare provider. This is paid via an online account that parents will have to set up for each child.
Anything you get from the Tax-Free Childcare scheme can only go towards approved providers. These include childminders, nurseries, nannies, school clubs, play schemes and home care agencies. However, the provider must be signed up to the scheme before you can pay them and benefit from Tax-Free Childcare. Therefore, it’s wise to check with your provider to ensure they are signed up before making any commitments.
Eligibility is based on a number of different factors and can be affected by your partner’s employment and income status. If you have a partner, then you must both be working unless one of you is receiving Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or Employment and Support Allowance. If you’re over 25, you will need to earn at least the National Minimum Wage or Living Wage for 16 hours a week on average. The good news is, unlike childcare vouchers, you might also be eligible if you are self-employed – as long as you meet the necessary earnings criteria.
However, if you or your partner have an ‘adjusted net income’ (that’s your total taxable income before any personal allowances or tax reliefs have been applied) over £100,000 in the current tax year then you will not be eligible. This includes any bonuses you might expect to receive.
If you want to claim Tax-Free Childcare your child must be 11 years old or under and live with you. Children stop being eligible on 1 September after their 11th birthday. Adopted children are included in the scheme, but foster children are not.
If you have a disabled child, you could get up to £4,000 per year until they reach 17. Again, certain eligibility criteria will apply. You should check the government’s website www.gov.uk/tax-free-childcare for full details before making any childcare commitments.
If you are at all uncertain about whether you qualify for Tax-Free Childcare or not, it’s always worth checking with a professional, such as a certified accountant or financial expert, for more information and advice.