The government started rolling out their new tax-free childcare scheme back in 2017 and it is now available to all eligible working parents.
The old childcare voucher scheme is being phased out and instead, working parents with children under the age of 12 can now take advantage of the government’s tax-free childcare scheme by opening an online account to receive their tax-free government top-up.
If you are a working parent, particularly if you are a contractor, here is what you need to know:
Why it’s good news for self-employed contractors
The new scheme is open to all working parents, not just employees.
This is a welcome boost if you are self-employed as you would have been previously excluded from the childcare voucher system.
So, unlike the old scheme, tax-free childcare means self-employed workers can finally benefit.
The old scheme – childcare vouchers
The system of childcare vouchers, also known as employment-supported childcare, is money paid out of your pre-tax income to pay towards nursery fees and other costs, such as music lessons.
It was up to employers whether or not they supported childcare vouchers, meaning that a wide proportion of workers missed out.
As it stands, if you are are already in a childcare voucher scheme, you will be able to stay in it for as long as your employer continues to run it.
If you are a limited company director with a childcare voucher scheme already in place, you will be able to retain it.
However, anyone who isn’t already using the childcare voucher system will no longer be able to, and will have to sign up to the new scheme.
The new tax-free childcare scheme
Under the new service, eligible families will get 20% of their annual childcare costs paid for by the government. You join it by creating an online childcare account, which takes about 20 minutes to set up (quicker if you already have a log in for the Government Gateway).
For every 80p you pay into your account, the government will top it up by 20p. The scheme applies a cap of £10,000 annual childcare costs per child, so you could get up to £2,000.
You can get up to £500 every three months to total the full £2,000 per year.
Tax-free childcare is open to all working single parents and couples who pay for approved childcare (generally Ofsted registered childcare) for a child under the age of 12, or under 17 if the child is disabled.
If your child is over 5 and the childcare is provided by the school, this must be outside school hours and on the school premises.
To be eligible, you will need to:
- Be over 21
- Have one or more child under 12
- Earn at least the National Minimum or Living wage (£125.28 per week if you’re over 25, both parents must earn this if you are a couple)
- Earn under £100,000 (applies to both of you if you are a couple – if one person earns more than £100,000, you won’t be eligible)
- Not be claiming tax credits (including the childcare element of Working Tax Credit), or universal credit
- Your childcare provider must be signed up to the scheme before you can pay them and benefit from tax-free childcare.
Visit https://www.gov.uk/tax-free-childcare for more information, including details about how it interacts with other forms of childcare help.