Budget 2013 announced the introduction of a new childcare scheme to support working families.
This was to be the new Tax-Free Childcare Scheme and it would be delivered by HMRC in conjunction with National Savings and Investments (NS&I). The introduction was delayed due to legal challenges. However, these were not successful and the phased introduction starts April 2017.
How the scheme works:
The scheme guarantees that all eligible parents opening an NS&I account for childcare costs through HMRC would receive from the government an extra 20% on amounts up to £10,000 (double for a disabled child).
Eligibility for the scheme
The scheme is open to working parents:
· who are employed or self-employed
· who are basic rate taxpayers and who do not receive tax credits or Universal Credit
· the salary of each partner must be worth more than 16 hours at national minimum wage rates
· both parents must work if it is a two-parent family (with some exceptions)
The child must be
· under 12 years of age or, if a child has a disability under the age of 17.
Only registered childcare providers may receive the Tax-Free childcare payments. Eligible parents will be provided with the digital search tool to locate them.
Implementation of the scheme
The start date has been announced as 28 April 2017. Information on the scheme can be found at here.
The scheme will be introduced gradually. At first only parents with children under the age of five years old or with disabled children under the age of 17 may apply. By the end of 2017 however, all eligible parents may join. The exact details of when parents are eligible to join will be issued by the government soon. At present there is an on-going trial.
Until April 2018 Employer-Supported Childcare will continue to be open to new entrants so parents may choose to sign up to that instead.
As a general rule of thumb, the new Tax-Free Childcare Scheme is only suitable for basic rate tax payers while higher and additional rate tax payers will find the Employer-Supported Childcare Scheme suitable for them. Parents may find access to the new online calculator helpful in their decision making.
Parents currently on the Employer-Supported Childcare Scheme can continue on it until they leave their current employer or for as long as the employer continues the scheme. The parents can, if they wish, switch to the Tax-Free Childcare Scheme just as employers can switch to a different voucher provider. This last move will not affect the employee’s right to stay in the scheme.
Employers part in the scheme
Though there is no formal role for the employer to play in the scheme, they may choose to support parents in the following ways:
· provide general guidance as how to locate the relevant information
· assist in identifying which scheme is the most appropriate for each individual employee
· offer to make payments either from net pay or as additional payments into the childcare accounts
· offer to make childcare support as a benefit in kind