The Kids are Alright: The tax-free childcare scheme
The new Tax-Free Childcare Scheme (TFCS) is now available to the first tranche of working parents. The scheme has initially been made available to working parents of children who will be aged under 4 on 31 August 2017. The TFCS will help support working families with their childcare costs. The new scheme will eventually replace the salary sacrifice scheme and will be open to all qualifying parents including the self-employed and those on a minimum wage.
The launch of the TFCS was expected to have taken place back in the autumn of 2015 but was delayed until this year following a legal challenge by a small group of childcare voucher providers. The group argued that the government’s decision to deliver the TFCS accounts through HMRC working in partnership with NS&I was unlawful and should have been subject to an open tender. The appeal was unanimously dismissed by the Supreme Court.
The new scheme is open to all qualifying working parents including the self-employed. 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, and each earning just over an average of £100 a week and not more than £100,000 each per year.
Qualifying parents can apply for the scheme using the new digital childcare service for TFCS. The new www.childcarechoices.gov.uk website provides further information on signing up for the service. The new scheme will allow working parents to receive a government top-up on their contributions. For every 80p in the £1 contributed by parents an additional 20p or 20% will be funded by 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 in childcare costs and is expected to be available for all qualifying children under the age of 12 by the end of this year.
Parents will be able to have one childcare account for each qualifying child. There are extra benefits of up to £4,000 per year for disabled children with a higher age limit of 17. The application process is already open to all parents of disabled children.
Parents already registered to use employer-supported childcare will be free to continue using their existing arrangements for as long as their employer offers it. However, employees will not be able to receive childcare vouchers if they start using the new TFCS. For some high earners and those with older children the employer-supported childcare scheme may be more beneficial. Restrictions on tax relief for top rate and higher rate taxpayers were introduced for new joiners to the employer-supported childcare scheme on or after 6 April 2011.
Both the TFCS and employer-supported childcare schemes can be used at Ofsted regulated childcare venues in England and at childcare venues regulated by equivalent bodies in Scotland, Wales and Northern Ireland.
In addition, from September this year parents of three and four year old children living in England will be able to claim up to 30 hours (increased from 15 hours) of free childcare per week, worth around £5,000 per child per year. The application for free childcare and the TFCS can be made concurrently when a child becomes eligible.