What does the Budget 2016 mean for childcare?
New and existing parents will continue to be able to claim Employer Supported Childcare vouchers until April 2018, details tucked away in the Budget confirm.
The scheme had been due to close for new entrants when the new Tax-Free Childcare (TFC) initiative is launched from the start of 2017.
The Budget also revealed that parents of the youngest children, or children with disabilities, will be eligible for Tax Free Childcare first. The scheme will roll out to other parents over the year, although full details of how this will work are yet to be revealed.
Under the new system, parents will get 20p from the taxman for every 80p they add to a Tax Free Childcare account. In theory, parents will get a maximum £2,000 per child, rising to £4,000 for children with disabilities.
But the maximum payment is only available to parents who can afford to pay in £10,000 per child, and critics say the new arrangements are much less generous than the outgoing voucher system.
Under the Employer Supported Childcare scheme, parents get tax relief on company-arranged childcare vouchers. Basic rate taxpayers can claim up to £55 a week, higher rate taxpayers £28 per week, and people earning over £150,000 a year can claim £22 each week.
‘These changes won’t necessarily benefit all parents’
"It is encouraging to see that the Budget offers some level of clarity over the upcoming childcare changes in the UK, but these changes won’t necessarily benefit all working parents,” says Iain McMath, chief executive of Sodexo Benefits, a company that organises the existing childcare vouchers.
He estimates the average family will get just £600 from Tax Free Childcare, far less than the £1,866 that a double-income family typically gets under the current system.
However, the new Tax Free Childcare support will be available to self-employed workers, and not just company employees.
Anthony Thomas, chief executive of the Low Incomes Tax Reform Group (LITRG), warns that the changes could be confusing, and calls for support to help people weigh up the two schemes.
“Since the scheme was first announced, LITRG has raised many concerns about the interaction between TFC and other childcare schemes,” he says. “People will face extremely complex and difficult financial decisions about whether to join the new TFC scheme or stay in existing schemes including childcare vouchers, tax credits and universal credit.”
“It is crucial that the government ensures that detailed guidance is published over the next few months ahead of the commencement of the scheme and that potential users are given support to help them make the right choice.”
Who qualifies for Tax Free Childcare?
You will be able to sign up for the new childcare support scheme if:
- Your children are under 12, rising to 17 for children with disabilities AND
- Parents are earning over £100 a week, and less than £100,000 per year. For couples, both parents need to be in work.
A special government scheme operated through employers that allows you to pay for childcare from your PRE-tax salary. The vouchers cover childcare up to 1 September after your child’s 15th birthday (16th if they are disabled) and can be used at any registered and regulated nursery, playgroup and for nannies, childminders or au pairs.
Child tax credit
A scheme started in 2003 that sought to replace a raft of other tax credits and benefits, the payout depends on the number of dependant children in a family, and its level of income. The amount of credit is reduced as income increases. It is payable to the main carer of a child, usually the mother, and is available whether or not the recipient is working.