Supporting the working parent

Supporting the working parent

Working parents have long argued for more financial support with regard to childcare costs, particularly those, like the self-employed who have been unable to directly benefit from employer supported childcare such as tax-free child care vouchers.

In Budget 2013, the Government announced new tax incentives for childcare. Following consultation on the design and operation of the scheme, the Government has now announced improvements to the proposed scheme.

The relief will be 20% of the costs of eligible childcare up to a total cost of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child. The original proposal had a cap of 20% of £6,000 per child.

The Tax-Free Childcare scheme will be launched in autumn 2015. All children under 12 within the first year of the scheme will be eligible. Under the original proposal only children under five would have been eligible in the first year of the scheme.

To qualify all parents in the household must:

  • meet a minimum income level based on working eight hours per week at the National Minimum Wage (around £50 a week at current rates)
  • each earn less than £150,000 a year and
  • not already be receiving support through Tax Credits or Universal Credit.

This means that the vast majority of working family units will be able to benefit.

What about existing employer supported childcare?

Where there is workplace nursery provision, this is not affected by the proposals. Tax-free childcare vouchers (or the directly contracted childcare alternative) up to a maximum value per parent of £55 weekly (lower tax free amounts apply for higher and additional rate taxpayers) will continue to be available for current members if they wish to remain within the old arrangements or they can switch to the new scheme.

In making such a decision it should not be forgotten that employees who participate in the existing tax-free childcare voucher scheme rather than taking a salary alternative also save employee national insurance contributions (NIC). This means that a basic rate tax paying couple who both receive childcare vouchers are currently saving annually £1,866 in tax and NIC. Under the new scheme their childcare costs would need to exceed around £9,330 annually for it to be worth changing their arrangements.

Further, employers will still be able to set up a childcare voucher scheme until the new Tax-Free Childcare scheme is launched, meaning there is still an opportunity for employers to also enjoy the NIC savings which childcare vouchers provide. No National Insurance savings will be available under the new proposals.

How will the new relief work?

It is proposed that parents register with the Government and open an online account. The scheme will be delivered by HMRC in partnership with National Savings and Investments, the scheme's account provider. The Government will then 'top up' payments into this account at a rate of 20p for every 80p that families pay in.

We will keep you informed as further details emerge over the next 12 months so that you will be ready to benefit when it is launched in autumn 2015.

Meanwhile if you have any questions please do not hesitate to contact us.

Interested in our accountancy services?

Why not contact Wilkes Tranter & Co Limited today for more information or a FREE no obligation quote.

Contact us
acca.png xero.png freeagent.png sage.png