Problems with HMRC’s new Tax-Free Childcare continue to crop up. You’re thinking of using the scheme, but you’re not sure whether it will leave you better off. How should you decide?
After long delays Tax-Free Childcare (TFC) is now open to parents who meet conditions and have one or more children aged eleven or under. If you’re self-employed, TFC is also open to you.
TFC is an online savings account which you can open via the government’s Childcare Choices (CC) site. Where the money in the account is used for approved childcare, the government pays an incentive – for every 80p you put in, it adds 20p. This bonus is limited to £500 per three months and £2,000 per year, although this is different for disabled children. You can have a TFC bonus for each child under twelve who lives with you until the 1 September after they reach eleven. You can have a TFC account for your own or adopted children, but not foster children. Even if your childcare costs aren’t evenly spread over the year, you can still pay into your TFC account to maximise the government top-up. You can then use the money when you need extra care, school holidays for example. The money must be for childcare you need so you can go to work.
As long as your childcare provider is regulated by one of the authorised bodies they can register to receive payments from TFC. This means it’s possible to use TFC funds to cover breakfast clubs, nurseries, holiday clubs, childminders and even nannies as long as they are registered. As a couple, to qualify for the TFC incentive, normally both of you need to work. If you’re on parental, sick or annual leave this counts as “working”. If one of you works and the other receives benefits, you may still be entitled, but if you’re self-employed and your other half doesn’t work, you aren’t.
Each parent needs to earn on average at least the NMW or living wage but not have total income exceeding £100,000 per year. It doesn’t matter if your earnings vary as long as over the three-month entitlement period you average 16 hours per week at NMW/living wage or more. If you’ve recently started self-employment, you’re exempt from this earnings test for the first year.
If you receive vouchers or subsidies for childcare from your employer, child or working tax credit, or Universal Credit, you can’t have a TFC account. You can qualify by ending the other payment, but working out if you would be better off is very tricky. HMRC has an online calculator to help you decide.