Childcare tax relief is changing....

In Autumn 2015, the Government will launch “Tax-Free Childcare” to help with the cost of childcare.

This scheme is a brand new scheme and different to the current childcare vouchers scheme. It is important to be aware of the changes that are coming as you may need to take action prior to the introduction of the new scheme.

Some frequently asked questions are answered below.

Questions and answers

Q. How does the scheme work?

A. The parents open an online account which they contribute into, to cover the cost of childcare with a registered provider. The government then tops up the account with 25% of the parent’s contribution. For example, if you pay in £800 a year, then the government will add £200 to that figure which means that you have £1,000 to spend on childcare.


Q. is there a limit on the government contribution?

A. Yes. The government will pay in a maximum of £2,000 per child per year. This requires a contribution by the parents of £8,000 per child per year.


Q. Is there a limit on the age of the children?

A. Yes. The scheme is initially available for children under 5 but will extend to all children under 12 within the first year. However, as childcare costs are higher for children with disabilities, the age limit is 17.


Q. How do parents qualify?

A. They need to be in work – employed or self employed – earning at least £50 per week on average but not more than £150,000 per year. They should also not be receiving tax credits or universal credits.  To support newly self employed parents, there is a period of grace where the government will allow such parents to earn less than the £50 per week limit.


Q. Can parents be in both the voucher scheme and the new scheme?

A. No. A choice must be made whether to continue to use childcare vouchers or to move to the new scheme.


Q. Do the parents need to pay into the account regularly?

A. No. The government realise that the cost of childcare fluctuates particularly over the summer months and therefore there is the flexibility to pay more in some months and less at other times. However, the government contribution will follow a similar pattern.


Q. I have two children. Do I need two accounts?

A. Yes you will need two separate accounts. However, you need to calculate how the contributions are allocated between the two accounts as you cannot switch money between the accounts or use money from one child’s account to pay for the childcare costs of another.


Q. Can anyone else pay into the account?

A. Yes. Grandparents, family members and even employers can contribute.


Q. Can the parents withdraw money from the account?

A. Yes. However, the government contribution will be withdrawn at a proportionate rate.


Q. Which is the best scheme for our circumstances?

A. Unfortunately, the answer is it depends. It depends upon your income, whether both parents work, whether they are employed or self employed, the amount of monies required for childcare costs and so on.


       We expect that further information will be announced after the upcoming General Election. In the meantime, if you do have any queries, our experts in payroll and tax will be able to assist.