Many of our clients have employees who are also parents, something which can make life difficult for smaller businesses, as staff members attempt to juggle work hours with the often high costs of childcare. However, there is plenty of help out there, including government assistance. One of the newer schemes, having been brought out in 2017 and not widely publicised, is the tax free childcare scheme.
Tax free childcare is a government scheme which offers families up to £2,000 per year towards childcare costs, making it easier and more affordable for parents to juggle their work and family commitments.
The scheme provides £2 for every £8 that a family pays to a childcare provider (which includes after-school clubs and other activities), up to a maximum of £2,000 per child, or £4,000 for a disabled child. This is equivalent to 20% basic tax rate relief. Up to £10,000 (or £20,000 for a disabled child) of childcare costs per year could qualify for this benefit.
Around 1.6 million families in the UK who are eligible to claim tax free childcare aren’t, so it is worthwhile spreading the message between colleagues at work about the benefits of signing up!
Tax free childcare is designed for working parents of children under 12. A child stops being eligible for the benefit on 1 September after their 11th birthday, or after their 16th birthday if they are disabled. Adopted children are also eligible.
Staff members or their partners (if they have one) should be working and earning at least £131 per week to qualify. This works out roughly to 16 hours a week at the national minimum wage for those aged 25 or over.
For those who are self-employed and have a fluctuating income week by week, as long as they are earning an average of £131 per week (worked out via a three-monthly average) then they still qualify. A parent will also automatically qualify if they have been self-employed for less than 12 months. Each parent needs to earn less than £100,000 per year to be entitled to tax free childcare.
There is an addendum to the rule that both parents must be working, which is that if one parent is on maternity, paternity, parental or adoption leave, the family may still be able to claim tax free childcare.
If eligible parents are separated and share custody of their child, only one parent will be eligible to receive the benefit. They may decide between them who is going to apply or, if they cannot agree, then they can both apply and HMRC will assess both applications and decide which one of them to award tax free childcare to, based on their circumstances.
Tax free childcare is not available at the same time as:
- Childcare vouchers
- Universal credit
- Child tax credit
- Working tax credit
For parents who are already claiming one or more of these, the government’s childcare calculator online can help them to work out which benefit is better for their circumstances.
Staff members are not eligible to claim tax free childcare if they are from outside the European Economic Area (EEA) and their UK residence card says that they are not eligible to claim public funds. However, they may still be able to claim for a child if their partner is a UK or EEA national, or if they are from outside the EEA but their UK residence card says that they can claim from public funds. If this is the case, then the partner would need to sign up for an online childcare account instead of your staff member.
What can tax free childcare pay for?
One of the best things about this scheme is that parents aren’t particularly limited in the kinds of childcare that they can use it for. Qualifying providers include:
- Breakfast clubs
- Sports clubs
- Art clubs
- Holiday camps (not all holiday camps qualify, it is best to check before applying)
All childcare providers must be registered with a regulator such as Ofsted, the Early Years Register or the Childcare Register in order to qualify.
They must also have registered with the tax free childcare scheme. If there is a provider that parents prefer and they are not registered with the scheme, parents can always ask them to sign up – the process is quick and simple and more than 68,000 childcare providers are already with the scheme.
When a parent signs up for and log into their tax free childcare account, they will be able to see a full list of all registered providers, who they can then choose from and send their payments directly to them via the BACS system.
How parents can work out if they should be paying for childcare
Before parents go ahead and sign up for the tax free childcare scheme, it is worthwhile finding out whether or not they should be paying for childcare in the first place. A lot of parents don’t realise all of the help options they have available to them, meaning that there are plenty of benefits that they might already be entitled to.
Free childcare in England is available to all children aged between three and four. Each child is able to get 570 free hours per year (15 hours per week over 38 weeks), and working households are entitled to double this as long as parents are earning more than £131 per week.
In Scotland, every family is entitled to 16 free hours per week, and in Wales it is 10 hours per week in some areas, up to 30 hours in others. Northern Ireland offers parents up to 22.5 free hours per week,
How to sign up
If your staff members are eligible to receive tax free childcare, the first thing they need to do is create an online childcare account on the government’s Tax Free Childcare site. They’ll need their national insurance number, and their unique taxpayer reference if they are self-employed, and the process will take around 20 minutes to complete.
Once they have signed up, they can pay money into their account using a debit card, by making a payment from their bank account, or via standing order. Payments to a childcare provider will then be paid from the online childcare account, bolstered by the benefit added by the government.
Parents need to ‘reconfirm’ their eligibility every three months, on their online childcare account, by simply ticking a box which says that their circumstances haven’t changed. If their circumstances do change in this time, they must inform the government immediately so that they aren’t at risk of paying a penalty.
Children are the future, there is no doubt about that. But it is also hard to argue that caring for them in the present creates a lot of pressure on staff members finances and time. So the more help that they get for this is a win win for everyone. Why not send a quick email to your staff members who have kids, and make sure they are aware of this generous scheme?
The team at TFMC offer the full range of accountancy services, and if you need help with anything in this respect, we would love to hear from you. Why not contact us on 0800 470 4820 or email firstname.lastname@example.org to find out more.