Tax-free childcare – who gets it and when is it available?

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If you have children aged up to 12, you’ll be able to get a tax break on your childcare. But how will the tax-free childcare work and who gets it?

Tax-free childcare explained

The government’s tax-free childcare is a tax ‘subsidy’ on childcare costs.

This is how it works:

  • Parents can get a 20% tax break. Parents will be able to claim 20% of their childcare costs, up to £10,000 for each child.
  • The scheme covers children up to the age of 12. It’s available for children up to the age of 12, or 17 if they have disabilities.
  • The tax break is available to parents who are working. It is available to parents who work, who don’t claim tax credits or Universal Credit and don’t earn more than £100,000 (each parent). Each parent will have to work an equivalent of 16 hours a week earning £120 a week each or more. Both self employed and employed parents will be able to claim the tax-free childcare.
  • You can use it to pay official providers of childcare. You can’t use it if you’re paying your parents to look after your children or if you’re using friend or neighbour. The childcare provider must be Ofsted registered, if they’re in England, CSSIW in Wales or the Care Inspectorate in Scotland.

SAVVY TIP: You can use tax-free childcare at the same time as you’re claiming free childcare. This can be worth up to 30 hours a week in term time.

How tax-free childcare works

If, for example, you have a child and pay £400 a month for his or her nursery fees, you can set up a tax-free childcare account and pay in £320 a month. The government will top this up with £80.

SAVVY TIP: The tax break will be worth 20% of your childcare costs, up to a limit of £10,000 a year in childcare fees or £833 a month.

  • The account is operated online: The government says there will be extra help for parents who don’t have internet access.
  • You won’t have to be a parent to contribute. Other family members (apart from parents) can pay into the account.
  • NS&I operates the account. The account is being delivered by HM Revenue & Customs, alongside National Savings & Investments. This means that parents won’t have to worry about finding a childcare tax relief account provider.
  • Parents will have to report any changes every three months. You won’t have to tell HMRC about any changes in ‘real time’, but you will have to do this four times a year.

Who can’t claim tax-free childcare

Parents who have children aged over 12, or 17 if they are disabled, won’t be able to claim this tax break. Neither will households where only one parent works — unless it’s a lone parent household.

What about the system of employer-based childcare vouchers?

The system of childcare vouchers that are available via your employer closed to new applicants in October. Anyone who’s already receiving employer-based childcare vouchers will be able to continue receiving them. However, if you sign up to the tax-free childcare scheme, you can’t then go back to the employer based one.

Useful links:

The Childcare Choices website is a government website (although it doesn’t look like it) that has information on childcare and government help you can get.

The government has a childcare calculator where you can work out how much help you can get towards the cost of childcare.

You can get emails about the new tax-free childcare scheme and when it launches in your area by signing up on the website.

Photo: Morguefile

Related articles:

Employing a nanny – how to sort out tax painlessly

Childcare options in your home; finding an au pair or nanny

State pensions and women; your state pension when you’re bringing up children

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