Following our article in the summer entitled Childcare Vouchers are Changing, problems with HMRC’s new Tax-Free Childcare continue to crop up. You’re thinking of using the scheme, but you’re not sure whether it will leave you better off. How should you decide? Joanne Gibson provides you some answers in her latest update.
Is Tax-Free Childcare up and running?
Yes, after long delays Tax-Free Childcare (TFC) is now open to parents who meet conditions and have one or more children aged eleven or under. If you’re self-employed, TFC is also open to you.
What’s the incentive?
TFC is an online savings account which you can open via the government’s Childcare Choices website. The money in the account is used for approved childcare, the government pays an incentive – for every 80p you put in, it adds 20p. This bonus is limited to £500 per three months and £2,000 per year, although this is different for disabled children.
Who can have Tax Free Childcare?
You can have a TFC bonus for each child under twelve who lives with you until the 1st September after they reach eleven. You can have a TFC account for your own or adopted children, but not foster children.
Even if your childcare costs aren’t evenly spread over the year, you can still pay into your TFC account to maximise the government top-up. You can then use the money if you need extra care, say, in school holidays. The money must be for childcare you need so you can go to work.
What sort of childcare?
As long as your childcare provider is regulated by one of the bodies like Ofsted, they can register to receive payments from TFC. This means it’s possible to use TFC funds to cover breakfast clubs, nurseries, holiday clubs, childminders and even nannies as long as they are registered.
What are the work requirements?
As a couple, to qualify for the TFC incentive, normally both of you need to work. ’Working’ includes periods of sick, annual and in some cases, parental leave. If one of you works and the other receives benefits, you may still be entitled, but if you’re self-employed and your other half doesn’t work, you aren’t.
What are the earnings requirements?
Each parent needs to earn on average at least the National minimum Wage or Living Wage but not have total income exceeding £100,000 per year. It doesn’t matter if your earnings vary as long as over the three-month entitlement period you average 16 hours per week at National Minimum Wage/Living Wage or more. If you’ve recently started self-employment, you’re exempt from this earnings test for the first year.
If you receive vouchers or subsidies for childcare from your employer, child or working tax credit, or Universal Credit, you can’t have a TFC account. You can qualify by ending the other payment, but working out if you would be better off is very tricky.
As you will see, there are many different conditions and restrictions that you need to take into account such as minimum earnings and working hours requirements. HMRC do have an online calculator which you can use to help you to work out if you would be better off opening a Tax-Free Childcare account.
You can of course also contact me or one of the team at JRW for advice on whether you qualify, whether the scheme would benefit you and what the next steps are.