Tax-Free Childcare scheme
The Tax-Free Childcare Scheme (TFCS) is open to all eligible families with children under 12. It was announced as part of the Budget measures that a service improvement will be made to ensure the TFCS is compatible with school payment agents. This will allow parents of up to 500,000 school-aged children across the UK to access the TFCS and use it towards the cost of their wraparound childcare (such as breakfast and after-school clubs).
The TFCS helps support working families with their childcare costs. The scheme provides for a government top-up on parental contributions. For every 80p in the £1 contributed by parents an additional 20p or 20% will be funded by the government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs.
The scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. In order to be eligible to use the scheme, parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.
The earnings limit does not apply to newly self-employed who started their business in the last 12 months. In addition, as self-employed income can vary, profits can be averaged across the tax year if it is necessary in order to meet the minimum income requirement.
The new tax-free childcare scheme moved a step closer when the legislation to enact the scheme received Royal Assent in December 2014. The scheme will support working families with their childcare costs and will launch in autumn 2015, the exact date has not yet been confirmed. The new schemewill replace the current salary sacrifice scheme and will be open to all qualifying parents including the self-employed and those on a minimum wage.
The scheme will be worth up to £2,000 per child each year. Initially, to children under the age of 5, but will be expanded over time to include all children under 12. For every 80p in the £1 contributed by parents an additional 20p (or 20%) will be funded by Government up to a maximum of £10,000. Parents will be able to have one childcare account for each qualifying child. In order to be eligible to use the scheme neither parent can earn more than £150,000 a year.
A consultation on the detailed rules for the scheme was launched last summer. The consultation closed on 13 October 2014 and HMRC now responded to comments that were made, primarily from childcare providers and children’s charities. As a result some changes have been made to the draft regulations for the scheme. This includes an extension to the time allowed to open a childcare account, a new option for self-employed parents to calculate their income over a tax year and an increase in the maximum amount parents of disabled children can pay into their childcare accounts.