Benefits for parents... thoughts about the changes
There are a number of different ways parents can claim help from the Government to pay for their childcare.
Tax Credits have been around for some years. There are 2 elements – the one which pays a contribution towards childcare (depending on factors such as what parents earn and their hours of work) – is working tax credits.
Tax Credits and some other benefits are currently being replaced by Universal Credit. Universal Credit is a single monthly payment for people in or out of work.
Childcare vouchers are paid by some employers - not all - and are not available for the self-employed. Childcare vouchers allow parents to pay up to £243 a month to their childcare provider, tax free and are sent to the provider from the parent through a company such as Busy Bees or Computershare.
Tax Free Childcare is a new Government scheme which will be delivered by HMRC – it is coming in this year (2017). It will pay back 20% tax on childcare payments (for every £8 parents pay into the account, the Government will pay in £2) so it is effectively tax free. It will operate through an online Childcare account provided by National Savings & Investments (NS&I) – parents will be able to build up a credit in the account to pay for, for example, holiday care when childcare costs often rise.
The eligibility rules for Tax Free Childcare are complicated but they will be worked out automatically for parents through their National Insurance Number. There is some useful information about who will be able to claim here –
Can I get Tax Free Childcare? - Turn2us
Childcare voucher companies will be closed to new applicants and it is intended that Tax Free Childcare will eventually replace the current voucher system.
Note for providers – you have to be registered to receive Tax Free Childcare payments or parents cannot pay you. You should have received a letter with a unique code that will help you to log in and set up your account. You will find more information here - Childcare service.
As far as I can see from information online, when a parent applies for and is awarded Tax Free Childcare, their Tax Credits / Universal Credits award will be terminated. This includes help they might get for housing, not just the childcare element of tax credits. The Government have stated that if family circumstances change, there will be a way of switching back.
From what I can see (I am not a tax expert) the new Tax Free Childcare scheme might benefit some parents who do not currently claim Tax Credits and who have higher childcare costs and they will be good for the self-employed who cannot currently access childcare vouchers (because Tax Free Childcare offers savings per child per year).
However, from what I can see (I am not a tax expert) some basic-rate taxpayers, families where only 1 parent works, single parents and families who currently claim Tax Credits / Universal Credit are less likely to benefit (because Tax Credits offers savings per parent per year and other benefits stop).
Some experts (I am not giving advice - just sharing it) recommend parents sign up for Childcare Vouchers now, if they are available through their employer – before they stop new applications – and then, if they work out that the Tax Free Childcare scheme is better for them in the future, they can change over when they receive the invitation to sign up from HMRC. However, this again depends on whether the family receive other benefits.
However, for providers the new Tax Free Childcare might be the better parent option because the money is paid from the Tax Free Childcare account directly to the provider – and we all know that Tax Credits can magically disappear if parents are short of cash one month!
PLEASE NOTE - it is strongly recommended that providers do not give parents advice about which system will be better for them!! Instead, recommend parents get out all their benefits information – which agency is paying them money and how much they are getting a month - and use this link to check which combination of benefits will be best for them - Check what help you could get with childcare costs - GOV.UK.
Also of benefit to parents and children, all three and four-year-olds are currently entitled to 570 hours of Government funded childcare every year. From September 2017, some of these 3 and 4 year olds will be entitled to 30 funded hours.
I have written more advice about the 30 hours Funding for Childcare.co.uk - you can download my guidance by following this link - **NEW** FREE guide to the 30 hours... - Knutsford Childminding | Facebook.
There is more advice for parents about the various benefits on the Money Saving Expert website - Childcare costs: get £1,000s in tax credits & vouchers - MSE.
I hope this helps demystify the changes ... please note clearly stated disclaimers. Thank you. Sarah.
