Coming soon: tax-free childcare

Plans for the introduction of a new scheme called ‘tax-free childcare’ were initially announced way back in the 2013 Budget. The original proposals have since been amended and the scheme is now set to be implemented during 2017. Broadly, the new scheme, which aims to help working parents with the cost of childcare, will replace the current system of employer-supported childcare (ESC) which is offered by less than 5% of employers and used by around 450,000 families.

Parents will be able to open an online voucher account with a voucher provider and have their payments topped up by the government. For every 80 pence that families pay in, the government will put in 20 pence, up to the annual limit on costs for each child of £2,000 (£4,000 for disabled children). Parents will then be able to use the vouchers for any Ofsted-regulated childcare in England and the equivalent bodies in Wales, Scotland and Northern Ireland.

For the purposes of tax-free childcare, a ‘parent’ is defined as an individual who has responsibility for a child, and the child’s primary residence must also be with the parent. This will ensure that adoptive parents, extended family members, and others who have taken on primary responsibility for raising a child, and who reside with the child, can also receive tax-free childcare. Lone parents will be eligible for the new scheme, provided they meet the criteria.

HMRC will consider the employment status of each member of a couple who live together as a household, including where one of the couple does not have responsibility for the child. Both parents must be in employment. Those families where only one parent in a couple is in employment, or where a lone parent is not in employment, will not be eligible for support.

The scheme will be available for children up to the age of 12, or 17 for children with disabilities.

To qualify, parents will have to be in work, and each expecting to earn at least £115 a week. Each parent must not have income over £100,000 per year.

Tax-Free Childcare will be launched from early 2017. The scheme will be rolled out gradually to families, with parents of the youngest children able to apply first.

Parents will be able to apply for all their children at the same time, when their youngest child becomes eligible. All eligible parents will be able to join the scheme by the end of 2017.

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