Back to school week – eligible for tax free childcare costs?

After a long summer holiday, many of you have probably been dreading the “Back to School” week! Of course, it’s great to have the kids at home over the summer and not having to rush out of the door but for those who work this can be a challenging time.

So, whilst it can be a sigh of relief to have the kids back at school some parents now face additional costs such as breakfast and after school clubs so that they can work and make up any additional time taken off to cover the summer holidays.  The average cost for families using an after-school club for five days is £59 per week.  This may not sound a lot but added to all the other activities kids want to do these days it can build up.

Nursery Costs

It’s not just childminding care for school age children, as costs can soon rack up for those parents who have younger ones at nursery or pre-school.

On average parents now pay £6,600 per year just for a part time nursery place! This of course can be much higher in places like London, Surrey, Hampshire etc. Full time places cost on average £242 per week.

These high costs mean that for some parents it can be difficult to choose between going back to work or not.

So what help is available?

Some may not know but the changes with childcare vouchers which were implemented in October 2018 means there could be more help available with these ever-increasing costs and you no longer have to be classed as an employee to qualify.

Childcare Voucher Scheme – Pre 5th October 2018

Employees could claim a childcare voucher of up to £55 per week/£243 per month (for higher rate tax payers joining a scheme after 6 April 2011 the sum was £28 p/w and additional rate taxpayers £25 p/w) which would be deducted from their salary and so exempt from Income Tax and National Insurance. This scheme was only available to employees, so if you were self employed you could not claim this.

Post 5th October 2018

The Government closed the childcare voucher scheme for new entrants and replaced it with the Tax-Free Childcare Scheme. The main reason for this was to simplify the process of claiming childcare costs. If you were part of the old childcare voucher scheme on 4 October 2018, you can remain in that scheme for as long as you wish provided that you stay with the same employer, do not take an unpaid career break for longer than a year, and that your employer continues to run the scheme.

Tax-Free Childcare

So how does it work? In simple terms it is an online account that you set up personally with HMRC, meaning no involvement from your employer and if you are self-employed you could also benefit from it.

Once set up the government will pay an extra 20p for every 80p you put into the account, up to a threshold of £2,000 per child, per year.

You need to ensure that your childcare provider is signed up to the Tax-Free Childcare scheme before applying.

Are you eligible for Tax-Free Childcare?

You may be eligible for Tax-Free Childcare if you (and your partner) are:

• In work, or getting parental, sick or annual leave
• Earning at least the Minimum Wage (£8.21 per hour for someone over 25 for the tax year 2019/20) and working at least 16 hours per week.
• Not claiming Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers under the old scheme (if you do choose to apply for Tax Free Childcare and are successful, all these credits/vouchers will need to stop immediately).

Also, to be eligible your child(ren) must:

• Be 11 years or under (children stop being eligible on 1st September after their 11th birthday)
• Normally live with you

It’s understood that many of the 1.6 million people eligible for Tax-Free childcare aren’t claiming.

If your children are adopted, they are eligible to receive Tax-Free Childcare, but foster children aren’t.

Additionally, if you have a child who is disabled you may be able to claim up to £4,000 per year until they are 17.

You and your partner cannot both have an account for the same child. For ex-partners, you will need to decide who should apply if you are jointly responsible for your child.  If you cannot decide, you must apply separately and HMRC will decide who gets the account.

Note: If you or your partner have an ‘adjusted net income’ (broadly speaking, total taxable income minus grossed up gift aid and pension contributions) of over £100,000 you will not be eligible to use the scheme.

30 hours free childcare

This account is also where you can apply online for 30 hours free childcare for 3 to 4 year olds provided the childcare is with an approved childcare provider.  Eligibility stops as soon as your child starts in reception class.   There are different schemes in Scotland, Wales and Northern Ireland.  You can benefit from both the Tax-Free Childcare/childcare voucher scheme and 30 free hours at the same time assuming you meet the eligibility criteria.

Due to shortfalls received by nurseries some only continue to offer the standard 15 free hours, which is available to everyone.

If either you or your partner’s ‘adjusted net income’ is over £100,000 in the current tax year you will not be eligible for the 30 free hours.

In summary

There may be more help available than you think and you no longer have to be classed as an employee. For those already within a childcare voucher scheme, you may wish to consider if the newer Tax-Free Childcare scheme would actually be more beneficial to you  – this would depend on your personal circumstances (e.g. if you are a single parent, the level of your childcare costs, number of children you have etc.) Take time to look at the childcare options available and if you are unsure contact us to discuss further.  Getting back to work doesn’t have to be difficult!