A whole new tax-free childcare funding scheme was launched in April 2017. It’s called Childcare Choices and means that, for the first time, some self-employed medics qualify for help with their childcare costs. Who does and who doesn’t qualify?
Who is eligible for Childcare Choices?
Your eligibility for tax-free childcare depends on your children’s age and your employment status.
Your children’s age
When it was first introduced on the 21st April 2017, tax-free childcare was only available for children under the age of 4. As of the 24th November 2017, it is now available for children under the age of 6.
Eventually children under 12 years old, or 17 years old if disabled, will be included.
Your employment status
In the past, childcare vouchers were only available to the employed and only then if your employer offered them.
Under the new Childcare Choices scheme, help paying childcare costs is independent of the employer. It means that many more people now qualify, including the self-employed.
The general eligibility is that both parents must each earn at least £120 a week but not more than £100,000 a year. If you have recently become self-employed and your income is low, then this lower £120 a week limit is waived.
How does Childcare Choices work?
For every 80p you pay into a tax-free Childcare account, the Government will add an extra 20p, up to a maximum of:
- £2,000 a year for each child under the age of 12, or
- £4,000 a year for a disabled child under the age of 17.
You can pay into a tax-free Childcare account at any time. If, however, you withdraw funds for anything other than to pay your childcare provider, you will lose the Government’s contribution.
It gets even better! Other people, such as your employer or a child’s grandparents, can contribute to the account on behalf of the parents. This could be a good option for grandparents to make an inheritance tax efficient gift that will both help the next generation and give themselves valuable tax relief.
How do I start using it?
The Childcare Choices website has a really helpful childcare calculator that will give you an estimate of how much you could get to help pay for approved childcare. You can also apply online via the website.
What else do I need to know about the new Childcare Choices scheme?
Tax-free childcare is in addition to the existing 15 and 30 free hours of childcare available to those who meet the eligibility criteria.
Eligible medics with a 2, 3 or 4-year-old are entitled to 570 hours of free childcare a year (15 hours a week), to use flexibly.
Plus, if you are an eligible family with a 3- or 4-year-old and both parents earn a minimum of £150 a week but less than £100,000 a year, you are entitled to an additional 570 hours of free childcare a year (30 hours a week in total) that you can use flexibly with one or more childcare provider.
These free childcare hours can be used to help pay for:
- Registered childminders, nurseries and nannies
- Registered after-school clubs and play schemes
- Registered schools
- Home care workers working for a registered home care agency
What if I already use the Childcare Voucher scheme?
If you already use or intend to start using childcare vouchers, you can continue to do so or register for the scheme up until April 2018. As long as your employer offers them, you can use them – no formal withdrawal date has been announced as yet.
You cannot use tax-free childcare at the same time as childcare vouchers, universal credits or tax credits.
Which childcare funding scheme should you choose?
Comparing childcare funding systems and deciding which one suits your family best is definitely worth doing.
For one, the old childcare voucher scheme gave parents tax-relief of 32% and 47% depending on their tax position whereas the new Childcare Choices scheme gives a blanket 20% tax relief.
On the other hand, the Government’s maximum contribution of £2,000 per child per year under the Childcare Choices scheme is much more than the £600-£900 per parent per year amount given under the old system.
In these times of scant tax breaks and unbelievable childcare costs, Childcare Choices will be a welcomed change for many families.
Do you agree? Let us know by adding your view below.