< Go Back Tax-free childcare update Posted: Sep 4, 2019 Tax-free
childcare update
HMRC have recently run a campaign to remind
people that they could be missing out on up to £2,000 per child, per year,
towards the cost of childcare.
Working parents and guardians may be eligible
to receive government top-ups of £2 for every £8 that they pay into a tax-free
childcare account, up to a maximum of £2,000 per child (or £4,000 for disabled
children), although there is an overall maximum limit of £10,000.
The scheme is open to all working parents
across the UK with children under 12, or under 17 if disabled.
Under the scheme, the parent/guardian opens an
online account via the government's Childcare Choices website and decides how
much to pay in and how often. The flexible nature of the accounts mean that
accountholders can pay in more in some months, and less at other times,
depending on how much they have spare to invest. The account holder�s
circumstances are re-confirmed online every three months. Money can be
withdrawn at any time but the government contribution will be lost.
Again, the flexible nature of tax-free
childcare allows anyone to pay into the account, including grandparents, other
family members or employers.
To qualify for the government contribution,
account holders will usually have to be in work, expecting to earn at least the
National Minimum Wage (NMW) or National Living Wage (NLW) for 16 hours a week
on average, over the next 3 months. This currently equates to at least £1,707.68, which is equivalent to the NLW for people over 25.
Where an individual is not working, they may still
be eligible for tax-free childcare if their partner is working, and they
receive Incapacity Benefit, Severe Disablement Allowance, Carer's Allowance or
Employment and Support Allowance. It is also possible to apply where the
claimant is starting or re-starting work within the next 31 days.
Self-employed people who do not expect to make
enough profit in the next three months can use an average of how much they
expect to make over the current tax year. Additionally, the earnings limit does
not apply to self-employed individuals who started their business less than
twelve months ago.
Where the individual, or their partner, has an 'adjusted net income' over £100,000 in the current tax year they will not be
eligible for tax-free childcare.
Broadly, 'adjusted net income' is total taxable
income before any personal allowances and minus certain payments, such as those
made under Gift Aid. It is also worth noting that the £100,000 limit includes
any expected bonuses.
It is not possible to receive tax-free childcare
at the same time as claiming Working Tax Credit , Child Tax Credit , Universal
Credit (UC) or childcare vouchers. Which scheme the individual is better off
with depends on their situation. The Childcare Choices website includes a
childcare calculator for parents to compare all the government's childcare
schemes on offer and check which works best for their families, including the
30-hour free childcare offer, tax-free childcare or universal credit.
Employer-provided childcare
Tax-free childcare effectively replaces HMRC's
employer-supported childcare scheme. However, parents who joined an
employer-childcare voucher scheme before 4 October 2018 have the option of
remaining in that scheme for as long as the employer offers it, or for as long
as they stay with the employer. The employer-provided voucher scheme closed to
new entrants from 4 October 2018.
Where an individual decides to switch from
childcare vouchers or directly contracted childcare, they must tell their
employer within 90 days of applying for tax-free childcare.
Finally, with regards to UC, HMRC recommend that
the claimant waits until a decision on a tax-free childcare application is
received before cancelling a UC claim.
Anyone who pays for childcare would be wise to
check their eligibility for tax-free childcare as they could be missing out on
considerable financial support.
Partner note: HMRC guidancehttps://www.gov.uk/tax-free-childcare ; Childcare Choices websitehttps://www.childcarechoices.gov.uk/