Tax-free childcare scheme update

1 May 2018

Launched back in April 2017, the government funded tax-free childcare scheme helps parents with the cost of childcare. The scheme gives eligible families an extra 20% towards childcare costs. For every 80p put into the scheme, the government tops this up by 20p, up to £2,000 per year per child (or £4,000 for children with disabilities).

Since 14 February 2018, when the government finished rolling out the scheme, it has been open to parents whose children are under the age of 12 (and 16 for children with disabilities). This compares to the childcare vouchers scheme, which is available to parents of children under the age of 16 (and 16 for children with disabilities).

Which scheme is best for you? Act now

Now is the time to review whether the tax-free childcare scheme or the childcare vouchers scheme is better for you, as new entrants for the childcare vouchers scheme only have until October 2018 to apply. Bear in mind that the voucher scheme does last longer in providing a tax free benefit.

Eligibility for tax-free childcare scheme

Tax-free childcare is open to both employed and self-employed parents, unlike childcare vouchers which can only be purchased from employers who offer the scheme. This means that self-employed parents are now eligible to qualify for the new scheme, along with those whose employers do not offer childcare vouchers, allowing them to take advantage of the 20% perk.

What are the rules for the tax-free childcare scheme?

  • Both you and your partner will need to be in work to qualify
  • You will not be eligible if either you or your partner has a taxable income over £100,000
  • If a couple, both you and your partner must earn at least the National Minimum Wage, or Living Wage for 16 hours a week (£125.28 per week if you are over 25)
  • This earning limit does not apply to you if you’re self-employed and started a business less than 12 months ago

Previously announced plans to scrap the childcare voucher scheme have been delayed by six months. As a result, parents now have until October 2018 to sign up for childcare vouchers (if they haven’t already done so). This six month delay enables further research to be collected on the concerns surrounding childcare accessibility and affordability within the UK.

Childcare service compensation

If you’ve been affected by any technical issues, you may be able to get the government top-up as a one-off payment for tax-free childcare, under HMRC’s compensation scheme for parents.

You will be eligible for these payments if:

  • You’ve been unable to complete your application for tax-free childcare
  • You’re unable to access your childcare account
  • You’ve not received a decision about if you’re eligible, without explanation, for more than 20 days

If you’re unsure which scheme is best for you, or if you’d like further information, please contact your local UHY adviser. Alternatively, fill out our contact form here.