Cutting the cost of childcare

 

For the majority of working parents, especially those with preschool children, the cost of good childcare can be a significant monthly expense, often in excess of the cost of a mortgage.

There isn’t much you can do to reduce the cost of childcare, however, there are currently two schemes which can help reduce the burden. Childcare vouchers and Tax-free childcare. Childcare vouchers will close to new applicants on the 4th of October 2018 meaning it is important to act now.

 

Everyone has different circumstances and the schemes have differing benefits therefore it’s essential you look at how your family would benefit from each scheme before making a decision.

 

Childcare Vouchers

This is the traditional scheme which has been in place for a number of years however it is only available for employees and only those whose employers offer such a scheme. Through salary sacrifice, the scheme offers the ability to purchase “vouchers” of up to £55 per week or £243 per month, depending on how much you earn, to use towards childcare providing you use a registered childcare provider. As this is classed as a pre-tax deduction, no Tax or National Insurance is paid on this resulting in a monthly saving of around £80 or £960 per year.

Originally the childcare voucher scheme was to close in April 2018, but it has now been extended for 6 months to October 2018.   However, some employers may have closed their schemes to new applicants in April 2018. If you are currently in the scheme you may remain in the scheme providing you do not change employer or take an unpaid career break in excess of a year and if you leave the scheme to join the Tax-Free Childcare scheme you cannot re-join it.

Tax-Free Childcare

In the past, not everyone could benefit from the advantages of childcare vouchers, particularly the self-employed therefore the government has recently introduced a new scheme known as Tax-Free Childcare. This is available for the self-employed and those employed working a minimum of 16 hours a week and earning at least the minimum wage. Should you have a partner they must also meet the criteria of being employed or self-employed, however, it is not available if either of you has a taxable income in excess of £100,000. It is available for children until the September after their 11th birthday i.e. when they go to secondary school or 17 if your child is classed as disabled and you must be using a registered childcare provider.

Tax-free childcare works by the government topping up £2 for every £8 you pay towards childcare up to a total of £2,000 per child per year, or £4,000 if they are classed as disabled. To receive this top up you must register through the government’s website . Once you start paying into your childcare account, the government will automatically top up your payment accordingly and you can then use this to pay your childcare provider.

 

It is important to note that you cannot claim for both Childcare vouchers and Tax-Free Childcare, nor can you claim working tax credit, child tax credit and universal credit at the same time as Tax-Free Childcare. Childcare vouchers can reduce the amount you receive in tax credits as it reduces the amount you physically pay in cash for childcare, therefore it is essential you look at your individual circumstances before making a decision about what is best for you. The government has an online calculator to help you with this should you require it.