Get to grips with the tax-free childcare scheme and you could save £2,000

Get to grips with the tax-free childcare scheme and you could save £2,000

Having children isn’t cheap – there’s the nappies, pram, toys, clothes then food, school trips and all the pocket money you need to think about over the course of 18 years.

So we can all get on board with ways to save money.

One of the biggest costs, especially when your children are small, is childcare.

While both parents might want to return to work after maternity or paternity leave, paying for someone to look after your little one while you focus on your career costs thousands of pounds every year.

Although support is limited, there are schemes out there to help you cut the costs – but it is tricky to wrap your head around them all.

One thing to consider is tax-free childcare, as you could use it to save up to £2,000 a year per child.

Who is eligible for tax-free childcare?

Your eligibility for tax-free childcare depends on four things:

  • if you are working
  • your income (and your partner’s income, if you have one)
  • your child’s age and circumstances
  • your immigration status

If you are married, in a civil partnership or are not but do live together, you and your partner must apply together.

If you are separated but both responsible for a child, you should decide who should apply or if you cannot come to a decision, you can both apply and HMRC will choose.

Working

You must be in work to claim tax-free childcare. This includes those who are currently on sick leave, annual leave or shared parental, maternity, paternity or adoption leave.

There are also some circumstances where you can still get the bonus, even if someone in your household is on benefits such as incapacity benefit, carer’s allowance or severe disablement allowance.

You can still use the scheme if you are self-employed.

Income

Your income (and your partner’s income) must be below £100,000. This is not a scheme that takes overall household income into account, so if you earn £10,000 but your partner earns £101,000, you are not eligible, but if you both earn £99,999, you can use the scheme.

However, you both must also be earning at least £140 a week to qualify – the equivalent of 16 hours per week at the national minimum wage for 25-year-olds or over from April 2020.

If you are a single parent, only your income will be considered.

Child’s age

Your child must be under 11 to qualify for the scheme, or under 17 if they have disabilities.

Immigration

You (or your partner if you have one) must have a National Insurance number and at least one of the following:

  • British or Irish citizenship
  • settled or pre-settled status
  • permission to access public funds – your UK residence card will tell you if you cannot do this.

You may also be able to access the scheme if you are living in an EU country, Switzerland, Norway, Iceland or Liechtenstein, if:

  • your work is in the UK
  • the work started before 1 January 2021
  • you’ve worked in the UK at least once every 12 months since you started working here.

How does the tax-free childcare scheme work?

To use the scheme, you need to open an account and pay money into it. For every 80p you put in, the government will top it up by 20p.

There is a quarterly cap of £500, meaning even if your costs are higher at different times in the year, it’s best to pay in consistently throughout and get the full bonus.

The top up is based on what you pay in, so you need to put in the full £8,000 to get the maximum £2,000 bonus.

Once the money is listed as ‘available funds’ in the account, you can use it to pay your childcare provider.

You must reconfirm you are eligible every three months but will be reminded about this and it’s important to take note or you may miss out on a top-up.

What can it be used for?

Your childcare provider must be registered with the scheme as well as with a regulator such as Ofsted, the Early Years Register or the Childcare Register.

Types of childcare it covers include?

  • Breakfast and after school clubs
  • Childminders
  • Nurseries
  • Playgroups
  • Nannies
  • Au pairs
  • Holiday activities such as sports or arts clubs

When you log into your account, you can see all registered providers and you can choose which one works best for you.

How do you sign up to the tax-free childcare scheme?

You need to create an account online through the government website and although both you and your partner can access it, you need to choose who does the initial setup.

You will need your national insurance number and unique taxpayer reference if you are self-employed.

It will take around 20 minutes to go through the process but don’t rush it.

What other help is available for childcare costs?

Up to 30 free hours per week for children aged three and four

In England, all three and four-year-olds get 15 hours free childcare a week (570 fours, usually taken as 15 hours over 38 weeks but can be used differently).

If you and your partner both earn under £100,000 a year, you can access another 15 hours for free, making a total of 30.

Elsewhere in the UK, there are other schemes.

In Northern Ireland, children in this age group get funded pre-school education. In Scotland, each child gets 16 hours for free but may be able to acess more and in Wales, children of this age get a minimum of 10 hours early education each week and up to 20 hours of childcare.

Universal credit

If you earn under £40,000 you can get help with childcare costs through Universal Credit. For those eligible, it is worth more than tax-free childcare.

To be eligible, you (and your partner if you live with them) need to both be working and you can claim back up to 85% of childcare costs.

The maximum you can get is £646 for one child and £1108 for two or more.

You can claim this alongside tax credits and also get the 30 hours of free childcare in England, but you cannot use UC alongside the tax-free childcare scheme.

Childcare vouchers

The tax-free childcare scheme replaced childcare vouchers but it is still available for some people.

Only some employers will still offer them so you will need to check before you choose this as an option.

There is no minimum earning required and no income limit, plus the vouchers can be used until your child is 15.

The maximum amount you can get is £933 per parent for a basic rate taxpayer, £625 per year per parent on a higher rate tax salary and £623 per year per parent on a top rate taxpayer salary.

If you decide to switch from the voucher scheme to the tax-free childcare scheme you need to give written notice and wait three months.

If you aren’t sure what you can get and which is best for you, you can use the government’s childcare calculator to work it our for your circumstances.

Do you have a story to share?

Get in touch by emailing [email protected]

Source: Read Full Article