Tax-free Childcare – how it works

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The Tax-free Childcare scheme is the new offering from the Government to help support working parents. It is designed to replace the current Childcare Voucher scheme which, from April 2018, will not accept new applications. Existing applicants however will not be affected.

The new scheme will be applicable for children up to the age of 12 and it removes some of the employer’s management of the benefit. Both parents must be working to apply and people receiving tax credits are not eligible. The scheme is supposed to provide savings of up to £2000 but there has been a lot of speculation over whether the existing voucher scheme provides more benefit to parents overall. The new scheme is separate to the 30 free hours now being offered for children under 4 and can be used alongside.

Applicants must be 16 or over, live or work in the UK, be employed or self-employed and earn on average at least £120 a week and less than £100,000 a year each year.

So how does it work?

  • Parents can open an account online - it does not need to be done by the employer as in the case of childcare vouchers
  • As a parent pays in, the Government will then add a further 20% to the account value. This is in effect the Government paying for the tax (20%) on the childcare. For every £8 a parent pays into their childcare account, the government will pay in an extra £2.
  • You can claim up to an annual limit of £2000 per child, or for a disabled child it is up to £4000.
  • It’s already available for children under 4 on the 31 August 2017 and any child who is registered disabled under 17.

What does this mean for employers?

From an employer’s perspective, each case will need to be individually reviewed. They should inform employees of the available options, but it may be worth emphasising that they must select the one right for them and that once they move to Tax-free Childcare scheme they cannot return to the Childcare Voucher scheme. If you want to pass on a useful link for employee’s to work out what is right for them, the Government has developed an online calculator which you can access here.

If you need help implementing a flexible working policy or wellbeing policy or need help managing flexible working requests please get in touch. One of our team will be happy to help.


 
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