The government have introduced a new tax-free childcare subsidy which has been rolled out gradually in 2017. The new Tax Free Childcare Scheme (TFC) currently runs alongside the existing childcare voucher benefit which remains in place and you can sigh up to the childcare voucher benefit at any time until April 2018.
Tax Free Childcare will provide working parents and now self-employed workers with another option for tax savings on their childcare directly through the Government.
What is the new scheme?
The government have introduced a Tax Free Childcare (TFC) scheme which will allow some working parents (where both parents are working or are single parents) to claim up to £2,000 per child towards the cost for childcare per year. IT has been proposed that for every 80p parents transfer to a dedicated online account and spend on regulated childcare, the government will top this up with 20p, which is capped at £2,000 of saving per child per year. This is equivalent to the basic rate of tax. Parents will be able to use the vouchers with any Ofsted regulated childcare provider in England and the equivalent bodies in Scotland, Wales and Northern Ireland, just as they can with the current Childcare Vouchers.
The new TFC will not be offered through employers as a salary sacrifice, it will work a bit like a savings account. Parents pay money into an account form their net pay, so it’s taken after tax and National Insurance have been deducted.
Who is not eligible?
Those not eligible for the TFC scheme include any couples where one parent is not working and parents who claim for children older than 12 years old. The proposed scheme will only be open to some working parents (where both parents or single parents are working) and the parent is not already getting support through the existing Childcare Voucher scheme. To be eligible, parents must be earning less than £100,000 annually, working a minimum of 16 hours per week and not receiving support through tax credits.
Under the new proposal, parents will be able to sign up for employer supported Childcare Vouchers until April 2018. They can continue to order vouchers beyond 2018, making tax and National Insurance savings for as long as their employer continues to run the scheme, or until their child is 15 years old (or 16 years old if disabled), whichever is sooner.
The existing employer funding Childcare Voucher scheme will be closed to new joiners after April 2018.
It is therefore important to join the existing Childcare Voucher scheme before April 2018, to give you the choice in case you are not eligible for the scheme and ensure you have access to the scheme that best suits your family.
Download our helpful at a glance Childcare vouchers vs Tax Free Childcare factsheet
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