Whilst it has been a long time coming it finally looks as if tax free childcare may be on its way. It was originally proposed to be introduced last year, but the scheme was delayed until 2017 following a legal challenge.
The scheme will provide a 20p tax credit to every 80p that you pay towards qualifying childcare costs. This can include, for instance, the cost of a registered nursery or the cost of out-of-term care for your child. It will apply to fees of up to £2,000 per year per child, and will be available for up to 5 children. The maximum tax free amount will, therefore, be £10,000 per year. In order to qualify parents must have earnings of at least £50 per week, or £2,600 per annum. The scheme will be available to all parents, including the self-employed.
There have been a couple of changes to the scheme during its delayed introduction. Firstly, there is an income limit above which tax free childcare cannot be claimed. This was originally set at £150,000 per annum for each parent. In his Autumn Statement the Chancellor reduced that income limit to £100,000 per annum for each parent. Secondly, it was originally proposed that each parent must work at least 8 hours per week to claim the tax free childcare. This requirement has now been increased to each parent needing to work at least 16 hours per week.
If you are fortunate enough to work for a company that operates a free or subsidised crèche or nursery then you will not be affected by any of these changes. You will continue to receive this benefit entirely free of any tax or national insurance. However, for this to apply then the facility must be wholly or partly financed and administered by your employer, ie it must be “in-house”, although it can be shared between a number of employers.
If your employer operates the childcare voucher scheme, which provides tax free childcare of up to £55 per week to each parent, then you can continue to receive this benefit for as long as you choose to do so provided, of course, both that your child continues to qualify and also that your employer continues to operate the scheme. You may choose to leave the scheme in order to claim the tax free childcare, and in this case you will then be unable to re-join it. You will also not be able to join any other scheme, for instance if you change employers. One very important point to bear in mind is that the current childcare vouchers can be used to pay for children up to the age of 15, compared to the age limit of 11 under the new scheme.
We are pleased to assist with these and other relevant matters where possible.