You may have seen reports in the media regarding the changes to the way the government helps parents fund childcare costs. The media are reporting apparent problems in accessing the government’s webpages, as well as difficulties in finding suitable childcare providers, in particular in connection with the free 30 hours childcare available for some 3 and 4 year olds.
There are reports that, even if a nursery is prepared to offer the free 30 hours, the facility may not be “free” as the government is not paying the going rate to nurseries who will have to charge for extras such as nappies, drinks and the like in order to make the scheme financially viable for them.
For those who do have to pay for their childcare, employers and parents have some difficult decisions to make by 5 April 2018 in respect to how they fund childcare.
At this date employees will not be able to join, and employers not able to set up, any new or existing child care voucher schemes provided by the employer. Under these schemes employees can, in exchange for a salary sacrifice, receive a contribution of up to (depending on your tax bracket) £55 per week tax free to their childcare costs.
This reduces tax and national insurance costs for both the employer and employee.
However, the introduction of the “Tax-free Childcare” scheme with effect from 21 April 2017 has changed the playing field completely. This scheme does not involve an employer, and, unlike current arrangements, is also available to the self employed. However, it means that parents (or A N Other – such as grandparents) have to pay into an account before receiving any funds from the government.
The family’s contribution will come from after tax and national insurance income.
Parents will have to set up accounts through the government website and review the information contained therein every quarter, as well as pay estimated childcare costs for the forthcoming quarter.
The government’s contribution will be limited to 20% of actual costs up to a maximum of total cost of £10,000 (£20,000 if the child is disabled). So for every £100 of childcare costs, the government will pay £20 and the family £80.
There are other conditions to be met, but it should be noted that both parents have to be working at least 16 hours per week, and neither must be earning over £100,000 pa.
The decision whether to remain with an existing voucher scheme or move to the new scheme will depend on the individual circumstances of the family and we at Robson Laidler recommend that your circumstances are reviewed carefully before making any decisions as the above is only a very brief resume of the new scheme.
Please contact Victoria Bishop at Robson Laidler (0190 281 8191 or firstname.lastname@example.org); alternatively talk to your usual contact.