Tax-free Childcare

Tax-Free Childcare Changes

The government’s new tax-free childcare scheme launches this year, providing working parents and self-employed workers with another option for tax savings on their childcare. Eligible parents will be able to open online childcare accounts to make payments directly to their registered childcare providers.

The government will top up their payments by £2 for every £8 deposited in the account, up to a maximum of £2,000 of government support per child. In the case of a disabled child this amount is increased to a £4,000 cap. To qualify, parents will have to be in work, and earn at least £115 a week. Each parent must not have income over £100,000 per year. The scheme will be rolled out gradually to families, with parents of the youngest children able to apply first. The government expects to have the scheme fully up and running by the end of 2017.

What if, as an employer, you currently provide childcare vouchers? Existing childcare voucher schemes will continue to run for as long as employers offer them, and the qualifying conditions are met. However, these schemes will close to new entrants on 1st April 2018. Parents are not able to claim both the new tax free childcare and the existing childcare vouchers. Some parents may be better off staying with an existing scheme, while others may benefit more by switching to the new scheme.

Employers need to be aware of the potential additional employment costs, especially where the vouchers were provided through a salary sacrifice scheme. Those employees with current childcare costs, and those anticipating having childcare costs in the near future, will also need to consider which option will be most financially beneficial to them.

If you have any questions regarding these changes, contact us for further advice.


Information provided by: Accountancy magazine  

Picture from: wikimedia

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