Claiming Help with the Cost of Childcare

Last year the average cost of a full-time childcare place in Northern Ireland rose to £164 per week, equating to a yearly bill of £8,424. This is a huge cost for families to manage.

In November last year we launched our annual Childcare Cost Report. We surveyed 5,000 local parents and discovered that 61% of parents struggled with the cost of childcare either throughout the year or at some point during it. Worryingly 24% of our respondents regularly used credit cards, loans from family or friends, or payday loans to meet the cost.

Childcare is a necessity for working parents, yet the high cost of childcare services can call into question whether it is worthwhile to be in work at all.

There is help available with the cost of childcare, however it can be difficult to navigate what is available and what is the best form of help for your family.

Help with the cost of childcare

There are two main forms of help with the childcare bill:

1. Childcare Vouchers

What are Childcare Vouchers?

The Childcare Voucher scheme is offered though employers as a benefit to staff. The majority of schemes operate though a ‘salary sacrifice’ agreement, meaning that you choose to sacrifice a certain amount of your gross salary each month and this amount is converted to Childcare Vouchers. The maximum you can sacrifice each month is £243 (per parent).

How much can I save?

The scheme is beneficial because the amount you sacrifice each month is tax and National Insurance Contribution free, saving you £77.76 each month or £933 per year. As both parents can join the scheme there are annual savings of over £1,860 to be made.

How does it work?

Advise your employer that you wish to join the scheme. Once it has been set up, your employer will take the amount you sacrifice each month (or week) from your salary and transfer it to a Childcare Voucher Provider. The Childcare Voucher Provider will credit the Vouchers to your online Childcare Voucher Account. Just like internet banking you should be able to check the balance of your account 24/7 and make payments to your chosen childcare provider.

Childcare Vouchers are easy to use, once they are set up your salary will be deducted every month and the amount will be credited to your Childcare Voucher Account. Voucher accounts are flexible, you can choose to save the money in your account or pay it to multiple registered providers.

Note: Some Childcare Voucher Providers will place an expiry date on Childcare Vouchers, it is worth checking this before saving Vouchers in your account for a long period of time. It is at the company’s discretion to add expiry dates, not all do, for example Employers For Childcare Vouchers have no expiry date so you can keep them in your Voucher account for as long as you need to.

2. The Childcare Element of Working Tax Credit

What is the Childcare Element of Working Tax Credit?

Some families are entitled to Tax Credits which supplement their income. There are two types of Tax Credits – Working Tax Credit and Child Tax Credit.

Parents eligible for Working Tax Credit can get help with up to 70% of their childcare costs.

How much can I save?

Families can claim up to 70% of their childcare costs, however this is subject to a maximum limit; if you pay childcare for:

  • 1 child – the maximum childcare cost you can claim is £175 a week
  • 2 or more children, the maximum cost you can claim is £300 a week.

This means that the maximum help you can get for your childcare through tax credits is £122.50 a week for 1 child or £210 a week for 2 or more children. However the actual amount you will receive depends on your income.

How does it work?

When you apply for Tax Credits you must fill out an application form which you can obtain by contacting the Tax Credit Helpline on 0345 300 3900. This form will ask a number of questions, for example, about your family circumstances, income and childcare costs. The Tax Credit Office will assess your claim and send you an entitlement letter detailing the elements and payments you are eligible for. You will receive any entitlement to Child and/or Working Tax Credit in the same payment. This will be paid directly into your bank, building society, Post Office or National Savings account. Each year the Tax Credit Office will write to you asking you to check the information they have about you, confirm your income and renew your claim.

Note: Childcare Vouchers and Tax Credits are the two main forms of help, there is also specific help for students, families with disabled children and children in their pre-school year. Phone our helpline on 028 9267 8200 for more information.

Childcare Vouchers v Tax Credits

Usually you will be better off claiming either the Childcare Element of Working Tax Credit or Childcare Vouchers. Very few people can benefit from claiming both at the same time. See our factsheet for more information or phone our Family Benefits Advice Team on 028 9267 8200.

Changes are coming!

There are a series of changes to childcare support expected over the coming years:

1. Tax-Free Childcare:

From next year a new form of help with the cost of childcare will be available. Tax-Free Childcare is a completely new scheme, it enables families to save up to 20% of their childcare costs. The maximum amount you can receive is £2,000 per year (when you spend £10,000 on childcare).

For a family to be eligible, both parents will have to be in employment, working over 16 hours a week, earning a minimum of £107 per week and not more than £100,000 per year. Self-employed parents will also be eligible to join.

The scheme will be available to parents of children up to the age of 12 (or age 16 for children with disabilities).

Tax-Free Childcare will begin to roll out in early 2017, with the youngest children being eligible to join first.

2. Childcare Vouchers

The Childcare Voucher scheme will close to new entrants in April 2018. At this point only those parents who are members of the scheme will be able to continue using it. It is important that anyone who will be better off on Childcare Vouchers is a member of the scheme at this time or they will miss out on greater savings.

3. Universal Credit

Universal Credit is a new benefit which will replace 6 existing benefits, including Tax Credits. From 2017 Universal Credit will begin to roll out across Northern Ireland, the details of which are still being finalised. Childcare support under Universal Credit will increase to cover up to 85% of childcare costs for working parents.

Still confused? We can help!

We have a dedicated Family Benefits Advice Team which offers free, confidential advice and information on all family benefits and entitlements, including help with the cost of childcare. Our Advisors can carry out a ‘better off calculation’ to help you work out what type of childcare support you are entitled to and which type of support is better for your family.

Contact our Family Benefits Advice Team on 028 9267 8200.