rules for tax-free childcare

The rules for tax-free childcare

04/05/2021Personal Tax , Tax Issues , Tax Saving Tips

In Oct 2018, the tax-free voucher was replaced by a tax-free childcare scheme. The childcare scheme is aimed at providing £2000 annually per child for child care costs. The childcare cost for disable children is up to £4,000 a year. But only 1 in 5 amongst 1.3 million families have registered for this scheme.

Find out the details about the scheme and its benefits.

The rules for tax-free childcare

 

Tax-free Childcare Rules During Coronavirus:

 

  • If you are earning below your normal income in coronavirus, the childcare entitlement will be provided to you. As your minimum income should be £140 weekly. And if you are temporarily earning less during the covid times, you should still be eligible for what you have earned.
  • If you usually earn more than £100,000 but your income has decreased last year due to Covid, you may be eligible for tax-free childcare. On the contrary, if you earn above £100,000, you are not eligible for this.

 

Why Pay for Childcare and How many Hours for Free:

Babies aged 3 to 4 can get at least 10 hours of childcare or preschool education without any fees, but it varies from state to state. Let’s find out the details of England.

 

England:

In England, the childcare duration is 15 hours for all 3 to 4 years children. This makes 570 hours in a year. You can avail another 15 hours for free if one of you and your spouse earns below £100,000 a year. For eligibility, your weekly earning should be £140.

 

Contact our chartered accountants to find out the latest rules of tax-free childcare.

 

Availing Universal Credit for Childcare Cost:

If you and your spouse are working and paying for childcare, you can claim back around 85% of your childcare cost through universal credit. So before going to tax-free childcare, just go through the eligibility criteria to avail maximum benefits.

 

Eligibility:

It’s difficult to find out your eligibility criteria for universal credit. But as a general rule, if your household earning is less than £40,000 a year, you should use Universal Credit and Benefit calculator to check your eligibility criteria. Some people with more household income may also be eligible for it.

 

How Much you’ll Get:

We can take help for childcare costs from universal credit if you are earning low. It doesn’t depend on the number of hours you work there. You can get back 85% of your cost under universal credit. It becomes a maximum of £646.35 monthly for a single child and a maximum of £1,108.40 monthly for two or more children.

 

Points to Remember:

You can get universal credit and 30 hours of free childcare in England at the same time.
You can’t claim universal credit with tax-free childcare.
Along with universal credit, you can use childcare vouchers (available for some).

Get help from our experts anytime.

 

How to Apply:

You can create an online account at the government tax-free childcare website to apply.  It’ll take 20 minutes to set up and you will need a National Insurance number to register (unique taxpayer reference for self-employed).

 

For further guidance on tax-free childcare, feel free to reach out.

 

Disclaimer: This blog provides general information on the rules of tax-free childcare.


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How to apply for tax-free childcare

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Government childcare scheme – tax-free top-up Working parents can receive a tax-free top-up from the Government to help with their childcare costs. The top-up is worth £500 every three months (£2,000 a year). A higher top-up of £4,000 a year (£1,000 every three months) is available where the child is disabled. To receive the top-up, …

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