The Latest Developments in Tax-Free Childcare
The current Government has included tax-free childcare as part of their long-term plan with the aim to support up to 1.8million families across the UK. The new online system could provide the families that qualify with up to £2000 of child care support per child, per annum.
Announced in the 2013 budget, the new childcare scheme was introduced to support working families with their childcare costs and is designed to be flexible for parents if, for example, they want to get back to work after the birth of a child or work part-time. Despite the target launch date been set for autumn of 2015, the development of the scheme was suspended due to a direct legal challenge from a small group of childcare providers which caused a suspension on the development of the scheme which prevented key delivery steps from taking place. However, the Supreme Court recently deemed the proposals to be lawful, meaning the scheme can go ahead with a renewed launch date in 2017.
Who is Eligible?
Available for children up to the age of 12, and to the age of 17 for children with disabilities.
Parents who are in work and earning around £115 each per week and below £100’000 per year.
Self-employed parents now qualify, unlike the current employer-supported scheme.
Newly self-employed parents with qualify without a restriction to earnings due to the introduction of a ‘start-up’ period.
Parents on paid sick leave, paid and unpaid statutory maternity, paternity and adoption leave
Contrasting to the current rules for employer-supported childcare, the eligibility for tax-free childcare will not depend on the employer offering the scheme and will therefore be available to any working family given they meet the requirements stated above.
The New Online System
The scheme requires an online account through the government website; GOV.uk. Anyone who wished to use the scheme will have to pay in money to the account to cover the cost of childcare with a registered provider. The governments will then top up the accounts with 20% of the childcare costs, with an upper limit of £10’000, comparable to £2000 per child every year. This equates to 20p for every 80p the parents or carer pays into the system. For families with disabled children, this sum has been increased to £4000 per year.
The new online systems has been chosen and designed to be as uncomplicated and flexible as possible. A simple log-in service will be used for parents to be able to view the account for all of their children at once, as well as the HMRC re-confirming a claimant’s circumstances every 3 months via, again, a simple online process. Parents and others (grandparents, other family members and employers) have the ability to pay money into their childcare account as and when they like, giving the flexibility to pay more in some months and less at other times meaning a balance can be generated to ease the burden of times when childcare is needed more, such as school holidays.
The systems also provides parents with withdraw money from the account, meaning no loss of money if circumstances change or if the parent no longer wants to pay into the account.
The new scheme will not be mandatory and the current employer supported childcare rules will continue to run. Though, once the tax-free childcare scheme is introduced, registration to the old employer supported system will be halted. Existing users of the old scheme will be able to continue to use it as long as their employer continues to offer it.