Tax-Free Childcare – Supporting Households In The UK
HM Revenue and Customs (HMRC) reminds working parents in the UK to grab the opportunity of earning up to £2,000 a year to pay for regulated childcare, including holiday clubs and other extracurricular activities, during the Easter holidays.
Thousands of eligible working families can now get £500 every three months and £1000 if the child is disabled. Furthermore, this tax-free childcare is available for children aged 11 to 17 or if the child has a disability.
This tax-free care covers the additional cost of holiday clubs, childminders and nurseries, before and after school clubs and other approved childcare schemes. Also—this scheme covers England, Scotland, Wales and Northern Ireland.
How Does This Childcare Scheme Works?
Firstly, Families have to deposit money into their tax-free childcare online accounts. Afterwards, they can utilise the 20% top-up for their childcare cost when needed. Also, parents or childcarers can open the accounts at any time of the year.
The child’s family will receive an additional £2 in their government top-up on every £8 deposit made to the account. The deposited money that is unused can be withdrawn at any time.
This scheme supports thousands of households, including working families and self-employed individuals working hard to pay for their bills and childcare costs.
With a considerable share in £34m of government top-up payments, about 328,000 working families in the UK had availed of this childcare scheme In December 2021. However, According to HMRC, only one in four families claims funds even though there are 1.3 million estimated eligible families in the UK
You Only Need To Earn Under £100,000 Per Year
To avail of this scheme, the minimum requirement is to earn £100,000 annually as a family regardless if one parent is working or both parents. Also, parents shouldn’t receive any tax credits, childcare vouchers or Universal Credit.
However, there are certain conditions in which you’d still be eligible even if you are not working or earning £100,000 yearly. Those conditions include:
- when you are on sick leave
- If you are on annual leave
- when you are on shared parental, maternity, paternity or adoption leave.
- If you or your partner cannot work and receive certain benefits like carer’s allowance or severe disablement allowance.
What If I Am Self-Employed?
If you’re self-employed and earn at least £142 every week for the next three months or throughout the rest of the current tax year, you’ll qualify; you will be eligible for the childcare allowance. If you’ve been self-employed for less than a year, then this does not apply to you.
If holiday clubs are used during school holidays, parents still can deposit money into their accounts throughout that year and distribute their childcare costs. Parents can use tax-free childcare support for childcare costs, including breakfast and after-school clubs.
Exchequer secretary to the Treasury, Helen Whately, stated: “There are many brilliant holiday clubs and childcare providers to help working parents during the Easter holidays. This scheme is a great offer to help cut the childcare bills”. Furthermore, she stated that families across the UK should now sign up for this scheme and take advantage of this support and extra pounds.
However, Families with younger children comparatively have higher childcare costs than families with older children, so the tax-free savings can make a difference. Furthermore, parents and childcare providers can sign up for the scheme via this link to receive the payments.
Childcare Scheme And Childcare Vouchers — Which Is Better?
Tax-Free Childcare and childcare vouchers are government schemes that help individuals with childcare costs. However, Childcare vouchers are no longer available to new applicants. This voucher scheme was closed to new applicants in October 2018.
If you were signed up for vouchers before the scheme closed, you could continue to get them as long as you stay with the same employer and it still offers them. Also, it is not possible to use both schemes simultaneously. You and your partner must avail benefits of the same scheme. But what’s the difference between both schemes.
- It is administered by the government.
- Couples who earn less than £100,000 each are eligible for the scheme
- Tax-Free Childcare will continue to be available for the foreseeable future
- Best fit for Higher childcare cost
- Your employer administers childcare vouchers
- No income limit with childcare vouchers.
- Couples don’t need to pay the total amount of income tax and national insurance.
- Best fit for lower childcare cost
Using these schemes, you can use the childcare calculator to get an exact idea of how much you can save on childcare costs. It compares childcare vouchers, Tax-Free Childcare and Tax Credits.
I’m A Single Parent; Do I Qualify?
Yes, Single parents can also benefit from Tax-Free Childcare. Remember, your partner does not have to be the other parent – it depends on who you live with. If you move in with your new partner and they are not eligible for the scheme or do not meet the criteria mentioned above, then you would then no longer be able to claim Tax-Free Childcare. If you are providing child maintenance to your partner then you might need to read our guide on child maintenance costs.
Jibran Qureshi FCCA is the Managing Director of Clear House Accountants and has over 10 years of experience in practice and across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. It was this dexterity that led him to be Enterprise Nation’s Top 50 Advisors.
Jibran is fueled by his passion for helping businesses. He unequivocally believes that as business advisors and accountants for our clients, it is our responsibility to work with them as business partners. As specialists, it is our duty to help our clients navigate through the complexities of constant change and the implications that come with it.
Over the past decade, innovative disruptions have changed the way businesses work, everything from cloud software, innovative business models, to AI and machine learning, have impacted how businesses operate, grow, and expand.
Jibran recognized the need to manage these disruptions sustainably, early on and shaped Clear House Accountants to not just be compliance specialists, but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
Jibran developed his prime role as the Managing Director to build Clear House’s capabilities so it can add value for its clients. He is of the firm belief that this can be done through consistent high-level training, building the right tools, and creating roadmaps to help businesses cope with prospective disruptions. He envisages that every client that comes on board, is provided maximum value through onboarding, ongoing services and the right mix of tools to help them become the best in the world.
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