The Government scheme that gives you up to £2,000 per child
What is Tax-Free Childcare?
It is the Government backed scheme to simply help parents with the cost of expensive childcare.
The scheme was launched in April 2017 and if you’re eligible, you can get an extra 20% towards childcare costs. If you are eligible, you can get up to £2,000 (£4,000 if your child is disabled) a year per child towards the cost of childcare for free.
You can even use the funds to pay towards activities like summer clubs.
How does Tax-Free Childcare work?
For every 80p you spend in childcare, the government will add 20p. This essentially gives you basic-rate tax back on your payment.
You can open a centralised account to make it easy. So for every 80p you put into the account, the government will add their 20p. You can then pay your childcare provider directly from that Tax-Free Childcare account.
With the scheme, you will be able to pay for up to £10,000 of childcare. This works out as you would pay £8,000 and get an extra £2,000 per child each year! If the childcare bill reaches the government maximum, you will not be able to get any more financial support that year. However, you can still pay childcare through the tax free scheme using your centralised account, just with no additional funding. If this happens, it may be easier to pay for your childcare directly with the childcare provider.
Do I Qualify for Tax-Free Childcare?
The scheme is open to all qualifying parents.
- You (and your partner) need to be in work to qualify for tax free childcare – This includes self employment.
- Available to single parents
- Your child must be 11 or younger.
- For children with disabilities, this is up to the age of 16.
- You (and your partner) must be earning at least £131 a week. This is the equivalent of 16 hours/week at the national minimum wage for 25 year olds or over.
- You’re self-employed and your income varies on a weekly basis, use your three month average to see if it meets the £131 a week minimum.
- Each parent needs to earn less than £100,000 a year.
- If you have been self-employed for less than 12 months, the minimum income requirement does not apply to you.
- If you are currently not working but are due to start in the next 21 days.
If you or your partner is in work and the other is not able to, you can still be eligible, if you receive any of these benefits:
- Carer’s allowance
- Severe disablement allowance
- Contribution- based employment and support allowance
- Incapacity benefit or long-term incapacity benefit
- National insurance credits
Can I qualify for Tax-Free Childcare whilst on maternity leave?
Yes! paid or unpaid statutory maternity, paternity or adoption leave is still classed as being in work. You just can not apply for the child that you are currently on leave for. You can use the scheme for older siblings.
Example of Tax-Free Childcare
Lt’s say that if your total childcare bill was £500 a month, you would pay £400 and the Government will pay the remaining £100. Therefore, this would cut your £6,000 yearly costs down to £4,800.
If the childcare bill for one child is £1,000 a month, you would pay £800 and have £200 paid for by the Government. However once the maximum amount of £2,000 has been given by the Government, in this case, after 10 months, you will have to pay the full total.
Who is Tax-Free Childcare best for?
- Self-employed or couples earning less than £100,000 each.
- Families with more than one child and high childcare costs.
How to sign up for Tax-Free Childcare
First of all you need to create an online childcare account here: Government Tax-Free Childcare site.
You will need:
- 20 minutes spare
- National insurance number
- Unique taxpayer reference (if you are self-employed)
- Debit card
You will pay money in using your debit card through a standing order, or a payment from your bank account. Although both parents can use the account, only one parent can open it and you will need to decide who’s name you will use.
The government should top the money up hours later after you put money into the account. It can take up to five working days to pay the childcare provider.