Tax Free Childcare
Written by: Amy Thornhill
From 6th April 2018 the current childcare voucher scheme will close to new joiners. From this date parents who are not currently in the existing childcare voucher scheme and wish to receive assistance in the funding of their childcare will instead need to sign up to the Government’s new Tax Free Childcare scheme (TFC).
The first phase of the TFC scheme started on 28th April 2017, initially for those with children under the age of 2.
The new scheme is open to a greater number of parents, including the self-employed, who haven’t previously been able to get any assistance with their childcare costs.
The arrangement will be directly between the Government and the parents of children up to the age of 12 (17 for children with disabilities) via an online account.
TFC negates the role of the employer in the funding of childcare. Employers will still facilitate the existing Childcare voucher scheme even once the scheme closes to new joiners.
Tax Free Childcare summary
- For every 80p you add to your online account, the Government will add a further 20p. The maximum tax relief available is £2,000 (£4,000 for children with disabilities) per year when the parent has invested £8,000 into the scheme.
- Parents must each earn at least £120 per week but not more than £100,000 each per year to qualify.
- The parent will have to reconfirm they are still eligible for TFC using their childcare service account every 3 months. This is essentially a tick box exercise to confirm that their details remain unchanged.
- It is possible to withdraw money from the account if you no longer require the savings for childcare, however; the Government will also withdraw their corresponding tax-free contribution they would have granted you on that portion of the account.
- You can apply for all your children once your youngest becomes eligible.
- Parents and others such as grandparents and employers, if they agree, can pay into your account whether this be on a regular or an ad-hoc basis.
Which scheme will be better for me?
The Government have provided a useful tool in determining which scheme is preferential depending on the parent(s) circumstances. Please click here to access this tool.
Prior to the scheme being fully rolled out on 6th April 2018 parents who have the option to join the Childcare voucher scheme will need to make the decision as to which scheme is preferential for them.
Those already in the Childcare voucher scheme have the choice to remain a member of their employer’s Childcare voucher scheme or join the new TFC scheme once their children become eligible. There is no obligation to come out of the current scheme and parents can continue to use it until their employer no longer offers it or they leave employment.
If you would like any further information on either the existing Childcare voucher scheme or the new TFC scheme please contact email@example.com.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Occupational pension schemes are regulated by The Pensions Regulator.