Tax-free childcare – what does it mean for me?

This week’s news confirmed that the closure of the workplace childcare voucher system has been delayed by 6 months.  Given the confusion around this area, Parental Choice, who sit on our Panel of Experts as specialists in childcare for working parents, has explained the whole system for us:

In April 2017, the Government launched a system called Tax Free Childcare, offering a new form of childcare vouchers; they also increased free childcare hours.

Childcare Vouchers

Tax-free Childcare is the new online service from the Government to help parents with funding towards the cost of childcare. Company Childcare Vouchers will become known as “Employer Supported Childcare” and Tax-Free Childcare will eventually replace the childcare voucher scheme. The way it works is that the government will pay £2 into the account for every £8 paid by the parent, into the account. This is equal to a maximum of £2,000 every year. Parents will then be able to pay their childcare provider (Nursery, Childminder or Nanny) directly from this account. The childcare provider must also be set up on the system and will need to be Ofsted registered.

Are you eligible for new government scheme?
Yes 

• Both parents working
• Both earn over £120 per week
• Self Employed

No 
• Either Parent earns over £100,000 per annum
• Two-parent households when only one parent works

Should I remain in my company childcare voucher scheme? 
If you don’t meet the eligibility criteria above and your Company offers childcare vouchers then definitely, yes!

If you are already signed up to a company scheme then probably yes! Employer-run schemes have the benefit of being very simple to join and administer.  An employee with excellent support systems either through the company directly, or through the childcare voucher provider, may favour this system - unless there are much greater financial benefits in changing.

If you are already supported by your employer childcare voucher scheme, you will not be able to use both options at the same time and must decide which is best for you.

15 hours Free Childcare

All children in England, aged 3 and 4, are entitled to 15 hours free childcare. This is available at participating nurseries, pre-schools, childminders and sure start centres and from 1 January, 1 April or 1 September following your child’s 3rd birthday. Parents are asked to sign a form to confirm that you are not getting 15 hours from somewhere else but the it is the childcare provider that needs to register with the local council to claim the money (as it is paid directly to them from the local council). Your nursery or childcare provider will inform you as to when you can take these 15 hours and they are only applicable for 38 weeks a year.

30 hours Free Childcare

Since September 2017 changes to the free childcare entitlement for 3-4 year olds have come into force.  All children aged 3-4 years are entitled to 15 hours’ free childcare regardless of parent’s situation.   However, your child is now entitled to an additional 15 hours free if you meet the above criteria (hence the name ’30 hours free’ childcare).

Will my child be entitled to the additional 15 hours? 
Again, both parents must be working – or the sole parent is working in a lone parent family. Each parent has to earn, on average, a weekly minimum equivalent to 16 hours at National Minimum Wage or National Living Wage (over £120 per week). Each parent must have an annual income of less than £100,000; and must live in England.

Does free really mean free? 
As with the 15 hours, the 30 hours free is only for 38 weeks a year (roughly in line with school terms) and therefore if you use a nursery offering 50 week’s cover, you will receive less than 30 hours free a week and you will receive an invoice for the extra hours you receive. In addition, nurseries can charge for “optional extras” such as food or extra-curricular activities. They can also set restrictions as to when the hours can be used which might not fit with a parent’s requirements.

Will nurseries offer 30 hours free? 
Most will offer increased hours but there may be limitations. Within the nursery industry there has been a lot of concern that the new scheme will provide them with financial issues as the money they receive from the government does not cover their costs. Nurseries will not be able to charge extra fees for the 30 hours but as explained above you may find that they start charging for extras, such as food, or structure their hours in a way that you are still liable to pay for certain attendance.

How do I apply for the additional hours? 
You will need to register via the Childcare Support Government Website.  It is essential to do this prior to the term that you are entitled to the benefit.  For example, if your child turns 3 in November, you will be entitled to the additional hours from 1 January, therefore you must apply prior to 31 December. Providing you meet the criteria and are entitled to the benefit you will then be sent an email with an account number.  This number has to be given to your childcare provider and they do the rest.  Every three months you will be sent a reminder to log on again and re-confirm that you still meet the criteria.

What Next?

It is important to fully understand the financial implications of such changes, discuss with your nursery whether they are able to offer the increased hours and whether there are any new charges that will be due, and check whether you would be eligible.  Many parents will be better off under the current system but new Tax-Free childcare WILL provide savings for some parents. Therefore, we encourage you to use the government calculator to help calculate what you are entitled to, based on your personal circumstances.

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