By Steve Blissett
The new childcare rules are a little confusing. Here are some notes to clarify the options available.
- If you already enjoy the tax benefits of Employer-Supported Childcare (ESC) schemes like the childcare vouchers, then these are set to continue as long as you join before September 2018. There is no change for those already receiving ESC.
- The Tax-Free Childcare scheme means that for every 80p you pay the Government will add a further 20p.
- You can’t enjoy the benefits of both schemes!
Tax-Free Childcare and Employer-Supported Childcare schemes
Employers can help employees with childcare costs. In the past, this has been done by providing childcare vouchers as a salary sacrifice, however, after the roll-out of Tax-Free Childcare (TFC), the government scheme to help working parents using existing Employer-Supported Childcare (ESC) schemes (like the childcare vouchers) was expected to close to new joiners from April 2018. Following the Chancellor’s Spring Statement, there is a concession to delay scrapping the scheme by six-months. This means that childcare vouchers will be available to new joiners until the end of September 2018. So, if you have already joined, you will be able to continue for as long as your employer runs the scheme or as long as you stay with your employer.
Under the rules, employees already using ESC can choose whether to remain in the existing schemes or switch to TFC, but parents cannot use both TFC and ESC at the same time.
Employer-Supported Childcare schemes (Recap)
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In a nutshell, all employers can now give up to £243 per month maximum per employee (not per child) to cover the cost of childcare which is tax and NI free.
Your company can pay up to £243/per month if your taxable income falls in the basic rate tax band. If you are a higher rate taxpayer then please see below:
Tax band childcare voucher entitlement:
- Basic rate tax payer (20%) = Up to £55 per week/£243 per month
- Higher rate tax payer (40%) = Up to £28 per week/£124 per month
Tax-Free Childcare scheme
In case you missed it, here are the details.
Eligible families will get 20% of their annual childcare costs paid for by the Government. For every 80p you pay into a newly-created Childcare account, the Government will add 20p. This could mean up to £2,000 per child as the scheme assumes a maximum of £10,000 per year. If you pay more for childcare then you will not receive any extra help.
To be eligible, you will need to:
- Have one or more child aged under 12 when the scheme started in 2017.
- Work at least 16 hours a week, being paid the National Living Wage or higher – this means both of you if you’re in a couple.
- Earn under £100,000 a year. This applies to both of you if you’re a couple (so if one earns more than £100,000, then – as a couple – you can’t access Tax-Free Childcare).
- Not be claiming tax credits (this includes the childcare element of Working Tax Credit) or universal credit.