Tax-Free Childcare - Employer Guide
Tax-Free Childcare enables working parents to receive financial help towards the cost of employing a registered/approved nanny. It works a bit like a bank account, with both you and the government paying money in. For every £8 that you pay in, the government will add £2 as well, up to a maximum contribution from the government of £2,000 per child per year or £4,000 per year for a child with a disability. You can then use this money to pay your nanny directly into their chosen bank account.
Both parents must be working; they can be employed or self-employed and must not be claiming Universal Credit or Tax Credits. In a single-parent family the sole parent must be working.
The working parent(s) must earn at least £125.28 per week and not more than £100,000 per annum, per parent. If either parent exceeds the £100,000 threshold, neither parent is eligible. However, both parents can earn for example £99,000 per annum and still be eligible.
Your nanny must be registered or approved by the childcare regulator. In England this means that your nanny must be registered with Ofsted (we have a guide available to assist your nanny with this process).
Your nanny must also be signed up with Tax-Free Childcare to be able to receive payments from you (we have a guide available to assist your nanny with this process).
Are All Children Eligible?
This scheme is available to parents of children up to and including the age of 11 (or 16 for children with disabilities).
How Do I Apply?
Tax Free Childcare is a digital service so the application process is online. https://www.gov.uk/help-with-childcare-costs/tax-free-childcare
What Else Should I Be Doing?
Your nanny needs to be registered with the childcare regulator and register under the Tax-Free Childcare scheme as a childcare provider. If she is not registered on the scheme you will not be able to pay her.
It’s important that your nanny gets started on this registration as soon as possible to give more time to work through any potential problems that may occur.
How Will I Pay My Nanny?
Similar to a bank account you will need to authorise each payment from your childcare account to your nanny. Repeat payments may be possible, similar to a standing order. You should make sure that you always pay the net pay figure on that month’s/week’s payslip as the total amount of net pay to your nanny including the amount paid from your Tax-Free Childcare account. There may be a three to four day delay in the payment reaching your nanny’s bank account, so please ensure that you take this into account when instructing the payment to your nanny.
I Get Childcare Vouchers, Are These Better?
The government have provided an online calculator to help you to determine which scheme is better given your family situation. Please use this to assess which scheme will be better for you https://www.gov.uk/childcare-calculator. Most parents paying an average full time nanny wage will be significantly better off under Tax-Free Childcare assuming that they are eligible for it.
Is The Childcare Voucher Scheme Ending?
An employer (the employer of you the parent) can continue to offer childcare vouchers to their staff but from October 2018 they will no longer be able to add any new employees to their Childcare Voucher scheme. Therefore, if the Childcare Voucher scheme is better for you, you must ensure that you join it as early as possible.
Can I Pay My PAYE Bill From This Account?
Yes, on your Tax-Free Childcare account you setup HMRC as a childcare provider.
Can I Pay More In Than My Childcare Cost?
Yes. Your payments into the account do not need to reflect exactly your payroll costs. Government will only add their top-up to the first £8,000 paid in, per child. You can also withdraw money from your Tax-Free Childcare account but any Government top-up on that amount will be removed when you withdraw the money.
Every three months you will need to reconfirm that you are still eligible for Tax-Free Childcare. This will be easy to do; if your details have not changed, you will simply need to login to your Tax-Free Childcare account and tick a box. Tax-Free Childcare will remind you to do this around four weeks before the reconfirmation deadline. If you do not reconfirm your details, the government top-up payments will stop, but you will still be able to pay money into, and out of, your account.
Useful Websites and Phone Numbers
- Childcare Calculator – A calculator to help parents determine which childcare scheme is best given their personal circumstances: https://www.gov.uk/childcare-calculator
- Childcare Choices – Government micro-site providing information to parents about various childcare schemes including Tax-Free Childcare: https://www.childcarechoices.gov.uk/
- Sign In to your Tax-Free Childcare account: https://www.gov.uk/sign-in-childcare-account
- Tax-Free Childcare helpline: 0300 123 4097