Changes to help with childcare costs
The government has announced changes in the ways it will support parents with registered or approved childcare costs in the future.
Who is it for?
Starting in autumn 2015, the government plans to phase in a new voucher scheme called the Tax-free Childcare Scheme. This will be a UK-wide scheme covering Scotland, Wales and Northern Ireland too.
To be eligible for the Tax-free Childcare Scheme, you must be working (and if you have a partner they must work too), and you must not be receiving support through Tax Credits, or later (when it comes in) Universal Credit. It looks as though you might be able to choose not to claim Tax Credits/Universal Credit if you think the new scheme is better for you. And if you work but your partner is unable to work because they are disabled or care for a disabled person, it looks as though the scheme will be available to you. Details like this should be confirmed when the government consult on the scheme.
The Tax-free Childcare Scheme will not be available to parents where either a single parent or either member of a couple earns over £150,000.
The scheme will initially be for parents with children under 5 and will eventually be extended to those with children under 12. Parents of disabled children will be able to use the scheme until their disabled child is 16. Unlike the current voucher scheme, your employer doesn’t have to be signed up to anything, and it will be available to self-employed people too.
How much help will it offer?
The government will contribute 20% of childcare costs, with the maximum help set at £1200 per year per child. 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 will then top up.
What about the current Employer Supported Childcare schemes?
People who are already using the childcare voucher system we have now will be able to continue using it if they wish, but can’t use the new system as well. Employer Supported Childcare schemes which offer childcare vouchers will close to new claimants when Tax-free Childcare comes in. If you use a workplace nursery and get tax relief on the costs of childcare there, this won’t change.
The support for childcare costs in Tax Credits will not change. You won’t be able to use the Tax-free Childcare Scheme if you are receiving Tax Credits.
What about support from Universal Credit?
Universal Credit is a new benefit, being piloted in parts of the north-west of England from April 2013, and then starting to roll-out to other new claimants in October 2013. It replaces Child Tax Credit, Working Tax Credit, Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance and Housing Benefit. But to begin with, it won’t affect existing claimants of these benefits.
Under Universal Credit, you will be able get help with childcare costs even if you work less than 16 hours. Usually, both parents will still have to work, with some exceptions such as where one partner has long-term sickness or disability, or caring responsibilities for a disabled person. The government have said that if a single parent or two member of a couple earn at least enough to pay income tax, they will get extra help in Universal Credit up to 85% of qualifying childcare costs. If you earn less than this, the help is 70%. Qualifying childcare costs mean registered or approved childcare of up to £175 a week for one child or £300 for two or more. So 85% is £148.75 for one child and £255 for two or more. 70% is £122.50 for one child or £210 for two or more. But because Universal Credit is means-tested, these are maximum amounts and your income will reduce the help you get.
Factsheet for parents and carers covering benefits and employment rights when you have children.
Information on resources and web tools you can use to help you make a decision about working hours when you have a child.
Current rates of Working Tax Credit, Child Tax Credit, additional elements and income thresholds.