Helen Hughes Accountancy | Tax-free Childcare for Working Parents
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Tax-free Childcare for Working Parents

20 Mar Tax-free Childcare for Working Parents

Government help is on its way for many families struggling with the huge costs of full-time childcare.

The government is to offer working parents tax breaks for childcare, with families able to claim up to £1,200 towards the costs of nannies or nurseries for each child aged under 12 under a new scheme announced today.

Starting in autumn 2015, the 1.3m families with children under the age of five will be able to claim. By 2020, when the scheme is fully operational, it will be open to around 2.5m families with young children, and is expected to cost up to £1bn.

To be eligible, both parents must be in work, with each earning less than £150,000 a year, and families should not already be claiming tax credits or Universal Credit when it is introduced. They will receive 20% – equivalent to the basic rate of tax – of their yearly childcare costs up to £6,000 per child.

The new Tax-free Childcare scheme is designed to replace the current system of Employer Supported Childcare (ESC) which is offered by less than 5% of employers and used by around 450,000 families. The government says that for a family with two children, the new offer will be worth more than double the amount of a single claim for ESC, and will be open to around five times as many families.

For parents who currently receive childcare support through tax credits and in due course Universal Credit, the government is providing an additional £200m of support from 2016. This is the equivalent to covering 85% of childcare costs for households qualifying for the Universal Credit childcare element where the lone parent or both earners in a couple pay income tax.

The government is to consult on the detail of the new Tax-free Childcare scheme, but it is likely that parents will be able to open an online voucher account with a voucher provider and have their payments topped up. For every 80p families pay in, the government will put in 20p up to the annual limit on costs for each child. Parents will be able to use the vouchers for any Ofsted regulated childcare in England and the equivalent bodies in Scotland, Wales and Northern Ireland.

Introducing the new scheme, Prime Minister David Cameron said:

‘This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs.’

George Osborne is expected to announce more details of how the scheme is to be funded in the Budget tomorrow, although part of the investment will come from savings made by scrapping child benefit payments for higher earners. There is also likely to be some criticism that the new scheme does not cover the 1.2m parents who choose to stay at home to look after their children, many of whom have lost child benefit this year.

Source: CCH Online 19th March 2013