Parents have until April next year to sign up for government backed tax-free childcare vouchers before the scheme changes – which could leave many worse off.
Despite it being in the pipeline since 2013, few parents have an understanding of what tax-free childcare involves, or even that it is being introduced at all.
Currently childcare vouchers offer up to £1,866 per year for a two-parent family paying the basic rate of tax.
But the same family who spend £5,832 a year on childcare will be £874.80 better off under the current scheme.
This is the maximum savings difference for basic rate tax payers in favour of the old scheme verses the new scheme.
An e-petition against the changes ‘Keep Childcare Vouchers open beyond April 2018’ has attracted 93,000 signatures.
But the Government responded saying: “The Government is committed to supporting working families and is investing more in childcare than ever before.
“Tax free childcare is one part of that increased childcare support, and everyone who earns at least £120 per week on average, but doesn’t exceed the upper income limit of £100,000 per annum can apply for the scheme, which is fairer and better targeted than vouchers.”
But only around 400 people from Kirklees have signed the petition, perhaps indicating many are not even be aware of the changes.
If the petition attracts 100,000 signatures the government must respond.
Here’s our break-down of tax-free childcare:
What’s the current system?
The current childcare vouchers scheme is available for parents with children up to 15 and is offered through employers through salary sacrifice.
For example, you might give up £1,000 of salary, but after tax and your National Insurance contribution, it would only be £700. In return, you’d get £1,000 worth of vouchers to spend on childcare, making you £300 better off than you would be if you’d simply taken your salary.
The government have decided to simplify and ‘streamline tax-free childcare’ by announcing that applications for childcare vouchers will close in April 2018, to be replaced by the tax free childcare scheme, which begun its rollout in April 2017.
How does the tax-free childcare work?
The new Tax-Free Childcare the Government contributes 20% of childcare costs, with the maximum help set at £2,000 per year per child (or £4,000 if the child is disabled).
It’s called the Tax-free Childcare Scheme because 20% is the basic rate of income tax. It will work by parents paying money into an account with a childcare voucher provider, which the government then tops up. For example, if you put £80 into the account, the government will put in £20.
Who is eligible?
Both parents, or one parent in a single-parent household, must be in employment, earning between £120 per week and £100,000 per year. The child must be under 12 years old.
Self-employed parents are also eligible to join.
What about the current Employer Supported Childcare schemes?
People who are already using the childcare voucher system will be able to continue using it if they wish. Parents cannot use both childcare vouchers and Tax-free Childcare.
Will I be better off?
Tax-Free Childcare is a new support that the Government says will leave some families better off. However, some families will be financially better off by choosing Childcare Vouchers, Tax Credits or Universal Credit.
Each family should make the choice depending on their specific circumstances.
Still want to know more?
Employers For Children offers a free guide or you can phone 0800 028 3008.
The Government has also launched a website to help parents understand what support is available.