Juggling the rigours of the modern working world and childcare can be difficult for employees and can have a serious impact on a business’s ability to retain highly-skilled and valued workers.
Currently, all taxpayers are afforded 15 hours of free childcare at a nursery, playgroup, pre-school, childminders or Sure Start Children’s centre if the child is three or four years old, or if the child is two and the taxpayer has an annual income of £16,190 before tax or less, receiving income support or Income based Jobseeker’s Allowance or if any of the following apply to the child:
- They are looked after by the local council.
- They have a current statement of special education needs or an Education, Health and Care Plan.
This element of free childcare will be extended to 30 hours for three and four year olds later this year for ‘working families’ in England, who are defined as couples or individuals who are each expected to earn on average at least £120 a week.
This additional free childcare time is not available to families where a partner is expected to earn more than £100,000 per annum.
Starting this year the Government is also to introduce tax-free childcare for children aged 0 to 11, or 16 if disabled.
This will be open to working families, as defined above, including self-employed workers in the UK. Under this scheme for every £8 a person pays towards childcare costs the Government will add an extra £2 on top, up to £2,000 per child, in tax credits.
This additional tax-free boost, which becomes available from 28 April for children under two before being phased in over the year for other children, can be used to help pay for registered childminders, nurseries, nannies, after school clubs, registered schools and home care workers for a registered home care agency.
As with the new free childcare arrangements, families where one partner is expected to earn more than £100,000 per annum are not eligible.
Depending upon their circumstances some taxpayers may be eligible for Universal Credit for childcare, which is available for working families in England, Scotland and Wales with children under 16 and covers 85 per cent of childcare costs, up to a cap. This means that depending on a person’s income they could receive up to £646 a month for one child or £1,108 for two or more.
There are also tax credits for childcare for children aged 0 to 15, or 16 if disabled, which covers 70 per cent of childcare costs, up to a cap – meaning that up to £112,50 a week for one child or £210 for two or more could be available. People may also be eligible for child tax credits even if they are not working.
Finally there are childcare vouchers, which are offered by employers. The amount an employee can get in childcare vouchers depends upon how much they earn and when they joined the scheme, but allow tax and NIC savings of up to £933 a year.
It is the Government’s intention that over time the tax-free childcare arrangements will replace childcare vouchers and childcare arranged directly by an employer.
Childcare vouchers will remain open to new joiners until April 2018, after which time parents using childcare vouchers can continue to do so as long as their employer continues to offer them.
Individual’s cannot use tax-free childcare at the same time as childcare vouchers, Universal Credit or tax credits and vice-versa. Those that qualify must open an online account to pay for registered childcare by visiting www.childcarechoices.gov.uk
To find out how we can assist you or your employees with the various childcare options available to them, please contact us. Our experienced tax and payroll team can advise you on the most tax efficient and suitable options for you and your business.