More families in Northern Ireland are benefitting from Tax-Free Childcare to help with their childcare costs
Employers For Childcare works across the UK assisting families to access financial support with their registered childcare costs. This includes through Tax-Free Childcare – just one of the various forms of support available. Since its introduction in 2017, take up of the Tax-Free Childcare scheme was low in Northern Ireland. However, over the last year there has been a significant increase – of around 35% – in the number of families claiming support through the scheme.
While a positive development, we know that there are many more families who are still missing out on support they could be entitled to, or who could be benefitting more from another form of support. We would encourage all parents to make sure they are receiving all the financial support they are entitled to with their childcare costs, and to check regularly that they are receiving the best form of support for their family.
There are a range of support schemes available (Tax-Free Childcare, Childcare Vouchers, Universal Credit and Tax Credits) and it can be complex to work out what will provide the best support. We are here to help – our Family Benefits Advice Service can do a ‘better off’ calculation (looking at income and childcare costs) and help families to work out what is right for them. Below is a short overview of the Tax-Free Childcare scheme and how it supports working families.
What is Tax-Free Childcare?
The Tax-Free Childcare scheme allows eligible working families to claim 20% of their registered childcare costs, up to £2,000 per child per year, or £4,000 for a child with a disability, from HMRC.
To claim Tax-Free Childcare, both parents need to be in employment (or one person in a single parent household), earning between £152 per week (equivalent to 16 hours working at the National Living Wage) and £100,000 per year each. So, for example, a household where each parent is earning £95,000 (combined income of £190,000) would be eligible.
Tax-Free Childcare is also available to self-employed parents (where eligible). Households where one parent is working, and the other parent is in receipt of Carer’s Allowance or certain disability benefits can also qualify.
The scheme is open to parents of children under the age of 12 (or age 17 for children with disabilities).
Savings are not taken into account in determining if a parent is eligible for Tax-Free Childcare.
How does Tax-Free Childcare work?
Parents must register for an online childcare account through the HMRC portal available via Childcare Choices. It takes approximately 20 minutes to apply, and you’ll need details for yourself and your partner (if applicable) including date of birth and National Insurance Number. You can then set up an account for each of your children who use registered childcare.
For every £8 you pay into your child’s Tax-Free Childcare account, the Government will pay in £2, up to a maximum of £2,000 per year per child (ie a family would need to put in £8,000 for the Government to top up their account with £2,000).
For example: A family is paying childcare costs for their two children at a cost of £800 per month for one child and £500 per month for the other child. They pay into each child’s Tax-Free Childcare account each month – £640 for the first child (80% of £800) and £400 for the second child (80% of £500). The Government tops these accounts up by the other 20% – equating to £160 and £100 respectively each month, bringing the total in each account up to the full amount of childcare costs for each child.
The maximum the Government will provide by way of a ‘top up’ through Tax-Free Childcare is £500 per child, per quarter, so as childcare costs continue to rise, some families may find they are no longer getting 20% of their full childcare costs paid through the Tax-Free Childcare scheme.
You can pay into your child’s account at any time and receive the top up, which will be paid within 24 hours, but usually more quickly than this. Other people, such as family, friends and employers, can also pay into the account. You can then make payments directly to the childcare provider from each child’s online Tax-Free Childcare account.
The amount a family will save with Tax-Free Childcare will depend on their childcare costs – the scheme will be most beneficial for families who have higher childcare costs, as they will be able to claim a higher amount in support. For families who are on lower incomes, Universal Credit may be a better form of support, depending on their circumstances.
For more detailed information you can download our Comprehensive Guide to Tax-Free Childcare here.
For more information on Tax-Free Childcare or if you would like to find out if Tax-Free Childcare is the best form of support with your family’s childcare costs, contact the Family Benefits Advice Service on Freephone 0800 028 3008 or email@example.com.
Case studies: How Tax-Free Childcare can help working families
Beth and Simon: A couple who are both self-employed and making a joint profit of £64,000 per year recently contacted our helpline for advice. They wanted to know if they could get any support with their £18,000 childcare costs. We were able to identify an entitlement to Tax-Free Childcare of £3,600 per annum, which was the equivalent of £300 per month towards their childcare bill.
Alex and Emma: A couple with a joint income of £120,000 recently contacted our helpline when their childcare provider gave them our number. They assumed that, because they were high earners, they wouldn’t be entitled to any help with their £21,000 childcare costs. We were able to advise them that because neither of them earned over £100,000 they would be entitled to Tax-Free Childcare of £4,000 per annum.
Juliet: A single parent contacted our helpline to see if they could get any help with their childcare costs as they did not qualify for Universal Credit due to their savings. We were able to tell them that their savings would not rule them out of Tax-Free Childcare so they would get 20% of the costs of their childcare paid.
Cap on support through Tax-Free Childcare must be removed
Tax-Free Childcare is an important form of support for eligible families. However, as registered childcare costs increase, our team is speaking to more families who have reached the cap on the maximum amount of savings they can make. This means, any further increase in their childcare costs will not be matched by a corresponding increase in support through Tax-Free Childcare. The UK Government needs to remove the £2,000 per annum cap on support available through Tax-Free Childcare, so that families can benefit from the savings on the full amount of their registered childcare costs.
If you would like further advice on help with childcare costs or wish to find out more about what financial support you may be entitled to, contact our Family Benefits Advice Service for free, impartial and confidential advice. Call us on Freephone 0800 028 3008 or email firstname.lastname@example.org – we are here to help.