New Tax Free Childcare from 2017
The new ‘Tax-Free Childcare’ scheme will be introduced in early 2017, replacing the current childcare voucher system. HMRC claim that the new system will enable more parents to go out to work providing greater security for their families. Broadly speaking NannyPaye supports this move as we feel it will save the majority of our clients tax compared to the current Childcare Voucher system. There will be some scenarios where the current system will be better for employers, so it’s important to note that should you wish to, you can remain on the current system beyond 2017 so long as your employer continues to support it. You will not however be able to join a new childcare voucher scheme after Tax Free Childcare starts so we expect to see childcare vouchers slowly reducing over the coming years.
So how does it work?
You’ll be able to open an online account, which you can pay into to cover the cost of childcare with a registered provider. This will be done through the government website, www.gov.uk. For every 80p you or someone else pays in, the government will top up an extra 20p up to a total of £2000 per child per year. i.e If you pay in £8000.00 the government will put in £2000.00 giving you £10000.00 to spend on childcare.
The scheme will be available for children up to 12 years old or 17 for children with disabilities. To qualify, parents will both have to be in work (or parent in a single parent household) and earning between £115.20 per week and £100,000.00 per year.
The scheme is no longer employer supported so it does not require any input from your employer and for the first time the self employed can now take advantage.
You or others (including employers or grandparents) can pay money into the scheme as and when you like rather than being restricted by childcare voucher amounts. You will also be able to withdraw any money not used for childcare however HMRC will also remove the corresponding contribution.
More information will become available ahead of the scheme being introduced so parents making childcare decisions are able to consider all their options.
Who will save the most under the new scheme?
The clients that will save the most are parents who are both in the 40% tax bracket, have two children in childcare costing £20,000.00 net pa /£384.00 per week net.
Under the current scheme your vouchers are means tested so you can only save £623.00 per parent making a total potential household saving of £1246.00 pa.
Under the new Tax Free childcare scheme this saving will increase to £4000.00 pa.
The self employed will also make a drastic saving as they are no longer excluded.
Who may want to stay on the original Childcare Voucher scheme?
Parents earning more than £100,000.00 pa as they will be wholly excluded from the new Tax Free Childcare system.
Parents in the 20% tax bracket may find the new system presents smaller savings compared to families who historically had their childcare vouchers means tested.
Parents with lower childcare bills £120.00 per week net or below will find that often childcare vouchers offer a better saving as the government are repaying you as a percentage of a net wage.
For guidance on your exact situation please call the NannyPaye team – 01737 816 320