Tax-Free Childcare

Tax-Free Childcare will replace the Childcare Voucher Scheme later this year. This works more like a savings account, where the government tops up your account with £2 for every £8 you put in. You can use this to pay for up to £10,000 a year in childcare, of which £2000 would be provided by the government. This figure is doubled (£4000) for a disabled child. Eligible persons will still be entitled to 30 hours of free childcare a week.

The main criticism of Tax-Free Childcare is that it actually assigns more money to parents who are well-off, but unlike childcare vouchers it is also available to everyone who works, including those who are self-employed. You also can’t get Tax-Free Childcare while receiving Working Tax Credit, Child Tax Credit, or Universal Credit, so it’s best to get the help of an accountant to see what will work for your family.

Who is eligible for Tax-Free Childcare?

  • Tax-Free Childcare is available for children up to the age of 11. They stop being eligible on September 1 after their 11th birthday. Disabled children are eligible until they are 16.
  • To be classed as ‘disabled’, a child must be receiving Disability Living Allowance, Personal Independence Payment or Armed Forces Independence Payment, or be registered as blind or severely sight-impaired.
  • Both parents in the household (or the parent in a single parent household) must be working.
  • Parents must be earning at least £125.28 a week (16 hours at National Minimum Wage) but no more than £100,000 a year. This does not apply if the parent/parents are self-employed and started their business less than 12 months ago.
  • If a parent is not earning because they are disabled or on paternity/maternity leave, they may still be eligible for tax-free childcare.

You can sign up for Tax-Free Childcare on the Government Gateway website.

Tax-Free Childcare vs. Childcare Vouchers

According to research by Sodexo Benefits and Rewards Services, as much as 64% of families may be better off with the Childcare Voucher Scheme versus Tax-Free Childcare. Once childcare vouchers are phased out in October 2018, households that pay a basic tax rate and have one child will be worst hit, as well as single-parent families. However, if you start using childcare vouchers before October, you can continue using them afterwards.

If you are self-employed or a contractor, you will only be able to use Tax-Free Childcare (as well as other schemes like Free Childcare). However, if you are the director of your own Limited Company, you may still be able to use Childcare Vouchers, provided you are both an employer and employee at that company. You can either receive your vouchers through your payroll, or by treating it as a business expense.

Get experienced support

At Tax Agility, we are experienced in helping people figure out how to optimise their earnings and save as much as possible by using schemes such as vouchers, Tax-Free Childcare, and tax credits. If you are uncertain of what childcare scheme works best for your circumstances, why not give us a call on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.