01983 614108

Tax free childcare scheme

by | Jun 19, 2020 | Covid-19, Tax News

Comprehensive guidance on the government’s support for childcare.

The government’s initiative to support people with the cost of childcare, the Tax-Free Childcare scheme, was opened to all qualifying families in February 2018.

Tax-free childcare is not an employer scheme. It is a government scheme that is available to working parents, including self-employed, with children under 12 years old (or under 17 if disabled). The scheme is available in England, Scotland, Wales and Northern Ireland. The scheme operates directly between the government, parents, and childcare providers via an online account.

If individuals already have a Government Gateway account, they can sign in on the first page. If not, a Government Gateway account can be created by following this link.

 

How the scheme operates

For every 80p the parent(s) pays into the Childcare Account, the government will contribute 20p, up to a maximum amount of £2,000 per child per year (and £4,000 per child per year for a disabled child).

Parents must use this on registered childcare including childminders, nurseries, breakfast and holiday clubs, as long as the childcare provider is signed up to the scheme.

Children will be covered by the scheme up until the last day of the week in which the first September following their 11th birthday falls. If they are disabled, this is extended to the last day of the week in which the first September following their 16th birthday falls.

Adopted children are eligible, but not foster children.

If an employer pays directly into a tax-free childcare account, the amount will be subject to income tax and Class 1 NIC via payroll.

 

Conditions

Individual parents/guardians or pairs of parents must:

  • be in work (including sick leave or annual leave). If not currently working, an individual parent might still be eligible provided their partner is working and the individual is receiving Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or Employment and Support Allowance
  • be earning at least national minimum wage for 16 hours a week (over the next three months). For self-employed who are not expecting to make enough profit in the next three months, they can use an average of how much they expect to make over the current tax year. A self-employed individual will be exempt from meeting the minimum earnings level in their first 12 months of their self-employment
  • not be in receipt of any tax credits, universal credits or employer-supported childcare
  • the scheme is not available if an individual claimant has income of more than £100,000 or, where the claim is made as a couple, one or both of the claimants has income of over £100,000.  (For a joint claim, both partners must work or one must be working and the other receiving Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or Employment and Support Allowance.)  To test the £100,000 limit each partner is looked at separately. A couple earning £99,000 each would still be eligible, even though their combined income is over £100,000, as individually their incomes are under the limit.

 

If a couple are separate and have joint responsibilities for the child, they should decide which of them apply for the childcare account.

 

Temporary changes made to the eligibility criteria for tax-free childcare and 30 hours’ free childcare, during Covid-19 

The changes may affect tax-free childcare if the claimant (or partner of the claimant if they have one) are:

  • on furlough
  • not able to work or working less
  • self-employed
  • a critical worker.

 

Furlough

Tax-free childcare would be available if the claimant’s wages or partner’s wage (if they have one) is:

  • at least the National Minimum Wage for 16 hours a week
  • below the normal minimum income requirement, but they normally expect to meet the income requirement.

 

Unable to work or working less

Tax-free childcare would not be affected if the claimant (or partner of the claimant if they have one) are:

  • getting sick pay or statutory sick pay (SSP) – time spent on sick pay or SSP will count as working and meeting the minimum income requirement
  • taking unpaid leave to care for others, such as your children – if you expect your income to meet the minimum income requirement (at least the National Minimum Wage for 16 hours a week) after Covid-19
  • living with someone who has Covid-19 – and needed to stay at home – if you expect your income to meet the minimum income agreement (at least the National Minimum Wage for 16 hours a week) after Covid-19
  • working less, because the hours have been reduced and your wage:
    • meets the minimum earnings requirement
    • is below the normal minimum earnings requirement but you would normally expect to earn above it.

 

If you are made redundant

If you are made redundant, you are not eligible to apply or reconfirm you have a childcare account because you are no longer in work and not meeting the minimum income requirement.

If you start employment again and expect to earn above the minimum income requirement you can apply 31 days before you start your new job.

 

If you are self-employed

You should apply or reconfirm if you already have a childcare account if you are:

  • eligible to claim a grant through the Self-Employment Income Support Scheme – payments made to you through the scheme will count as earnings
  • you are not eligible for self-employed income support but would expect to earn at least the minimum income requirement.

 

If you are claiming Universal Credit

If you are now claiming Universal Credit and were getting Tax-Free Childcare, you cannot apply or reconfirm for Tax-Free Childcare – if you stop claiming Universal Credit you can apply for Tax-Free Childcare again.

 

If you are a critical worker and if you are working more and breach the maximum income threshold

If you are a critical worker, you may have exceeded the maximum income threshold of £100,000 per year. If this is because of increased hours as a direct result of Covid-19, you will still be eligible for Tax-Free Childcare for the current tax year.

Further guidance is available here:

Article from ACCA In Practice