Tax-Free Childcare – Are Your Employees Aware?
With the cost of everything from food to fuel to mortgages fast on the increase, this article will look at a little-known Government initiative that helps working families with the cost of childcare.
This is not a scheme that your employer has to be part of or that an employer has to administer or have anything to do with at all. However sharing this information with your employees could put more money in some of their pockets each year.
Tax-Free Childcare is a scheme whereby the Government covers the tax payable on childcare costs up to a yearly limit of £2,000. This means that for every £8.00 a parent pays towards childcare, the Government will top this up by £2.00.
This is not something that an employer has to sign up for and offer, but instead is something that eligible individuals register for directly on the gov.uk website.
The scheme is available to parents of children up to 11 years of age who usually live with them. It is also open to adoptive parents. Parents who are married or in a civil partnership or are living together as a couple are required to apply for the scheme together.
In order to be eligible, each parent must be working (or on sickness absence or parental leave) and expect to earn at least the National Minimum / Living Wage over the next 3 months. If either parent expects to have an adjusted net income of over £100,000 in the current tax year, they will not be eligible for the scheme.
Parents are required to reconfirm their eligibility for the scheme every 3 months.
Once an application is approved, parents will have access to a dedicated online Government account, in which they need to pay in their portion of childcare costs. The Government then automatically tops this up by 25% of what the parent has paid in. The parent will then be able to transfer the whole amount of childcare fees to their childcare provider.
Tax-Free Childcare can be used to pay for any approved childcare as long as the provider is signed up for the scheme. This can include childminders, nurseries, nannies and also after school clubs.
Children are eligible until 01 September after their 11th birthday. The Government top up is capped at £500 every 3 months or £2,000 per year but this does increase slightly if your child is disabled. Parents can have a Tax-Free Childcare account for each of their eligible children and it can also be used alongside the 30 free hours of childcare (subject to its own eligibility requirements).
A simple worked example of the scheme is as follows:
Nursery invoice for the month: £100
Parent’s payment into Tax-Free Account: £80
Government’s payment into Tax-Free Account: £20
Parent pays nursery invoice from Tax-Free Account: £100
The cost of childcare for full time working parents in particular is significant, meaning the savings that can be made by using the Tax-Free Childcare scheme can make a real difference to families who may be struggling with the rising costs of living. We don’t know why this is not advertised openly by the Government or even childcare providers themselves but as it can help very many families and employees, we wanted to spread the word and encourage employers to do the same.
Further information and details about how to register can be found at Tax-Free Childcare – GOV.UK (www.gov.uk).
If you have any questions about the scheme, how to help your employees with the rising cost of living or any employment related matters, please contact one of the Employment Law team.
Amy Hallam
Head of Employment
t: 0114 3496989
e: amy.hallam@brmlaw.co.uk
Ellie Leatherday
Senior Employment Solicitor
t: 01246 564002
email ellie.leatherday@brmlaw.co.uk
