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Tax-Free Childcare scheme

Tax-Free Childcare is a new HMRC scheme that offers working families support towards childcare costs. This can be used for childminders, nurseries and nannies, after-school clubs and play schemes, registered schools and also for registered home care workers.

It is available for children under the age of 12, or under 17 if the child is registered disabled. To qualify for Tax-Free Childcare parents and partners in the household must generally meet a minimum income level of on average £120 a week and each earn less than £100,000 a year.

If you’re newly self-employed, you can benefit from the ‘start-up’ period of 12 months, in which you will not be be required to earn the minimum income level. A new start-up period will be available every five years.

Parents will need to be in work to qualify – for example if you are self-employed and your husband/wife doesn’t work, you won’t be able to take advantage of the scheme

How does the scheme work?

To cover the 20% VAT usually charged on top of services, the Government will top up every payment of 80p with an extra 20p up to the equivalent of £2,000 per tax year, per child.

The amount of £2,000 isn’t all available at once and there’s a quarterly government contribution limit of £500. For disabled children, the annual cap extends to £4,000.

Those eligible will be able to apply for all their children at the same time although the government rollout will start with the youngest children first. Parents will need to open an online account (Government Gateway account with HMRC), which they (or other family members) can use to pay for childcare from a registered provider.

The account balance can be withdrawn and used for childcare whenever the account holder wishes, as long as the provider is registered under this scheme. Parents can withdraw the money built up if they need to, but if you do, the Government’s contribution will be withdrawn. It is also worth noting that the scheme can’t be used if you’re claiming Universal Credit.

Each account holder must reconfirm Tax-Free Childcare eligibility every three months.

How can I apply for Tax-Free Childcare?

If you’re a working parent with a little one who will be under 4 on 31 August 2017, you can apply now on the HMRC website for an online digital account. The scheme will be rolled out to all other parents by the end of 2017. If you have older children, you can register to be notified when they become eligible.

Parents can apply online to register but will require their national insurance number and/or unique tax payer reference, HMRC can and will verify details for eligibility. Once you have a child who is eligible for Tax-Free Childcare, you can sign up any other children at the same time.

Can I use the Tax-Free Childcare Scheme with my existing Childcare Voucher scheme?

Parents can’t use Tax-Free Childcare alongside Childcare Vouchers, Universal Credit or tax credits (recipients of Universal Credit can still sign up for 30 hours of free childcare, though).

For those employers who currently offer Employer Supported Childcare, usually in the form of childcare vouchers, these schemes can remain open to new entrants until April 2018. Existing members have the option to remain in their existing scheme or change over to Tax-Free childcare as their child becomes eligible. It is not possible to benefit from tax-free childcare and employer supported childcare at the same time.

Childcare Vouchers remain available until April 2018. If you’re an employee and already using childcare vouchers, you can continue to use them after this date if your employer is still offering them.

What else is there to mention?

In addition to the Tax-Free Childcare scheme, the amount of free childcare for schemes for example, Surestart has been doubled from 15 hours to 30 per week for children aged three to four.

If you are an existing client and would like to discuss this in further detail please contact your client manager who would be happy to assist.

020 3301 7474


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