Back in April 2017 we discussed the introduction of the new childcare voucher scheme, “Tax Free Childcare”, and so, almost a year on, we think it may be useful to revisit the subject and give an update on the forthcoming changes in 2018.
Employer Supported Childcare Scheme – Changes from 2018
Following the introduction of the new ‘Tax-Free Childcare’ scheme, we will see the existing and widely operated Employer Supported Childcare Scheme (ESC) closed to new applicants from the 6th of April 2018 onwards. However, if you are already signed up and your employer continues to operate the scheme you will not be affected by this until either your eldest child becomes ineligible or your employer ceases to operate the scheme.
Under the ESC scheme, employees enjoy income tax relief at source on their earnings and also National Insurance relief if the scheme is operated via salary exchange. Therefore, it may be worth signing up for this before registration closes if you are eligible. Remember both parents can take advantage of the scheme as soon as the baby is born!
From a Company perspective, where the ESC scheme is operated via salary exchange savings are made on employer NI. Therefore as above, with the April deadline fast approaching we would encourage employers to actively promote the scheme in their workplace in the hope that as many employees sign up as possible before the deadline.
One point to note is that you cannot continue to claim childcare vouchers under the ESC scheme if you successfully apply for the new ‘Tax-Free Childcare’. The scheme which will be most beneficial for you will be dependent on your household earnings and personal circumstances, and as such it may be worth visiting HMRC’s childcare calculator to determine which scheme is most suitable.
Tax Free Childcare
Recent figures suggest that more than 53% of parents are unaware of the various childcare support options that are available to them which is surprising as following the introduction of one of the many schemes available, ‘Tax-Free Childcare’ in April 2017, a qualifying individual can receive up to £2,000 of free money annually to use on childcare costs (£4,000 if your child has a disability). As such, we feel it is important to highlight the benefits of the ‘Tax-Free Childcare’ scheme to both employees and employers alike.
Tax free childcare was previously only available to the parents of children who were under four on 31st August 2017, however this has now been rolled out and all eligible parents of children under 12 (or 17 if they have a disability) can sign up.
In order to qualify for the scheme the following conditions must be met;
- You and your partner must both be in work in the UK (those who are self-employed now also qualify).
- If you are a lone parent, you must be in work in the UK (whether that be employed or self-employed)
- If you are in employment, you and your partner must both earn at least 16 hours at the National Minimum Wage each week
- If you are self-employed and started your business less than 12 months ago, the above earnings limit will not apply
- You must each earn less than £100,000 a year
You must not be in receipt of other support with your childcare.
The scheme operates through the medium of an online account, where for every £8 that you deposit the state will add £2. This allows for up to £10,000 of childcare costs to be topped up by the government per child each year giving parents the maximum amount of tax free money of £2,000, so it is certainly worth considering.
The account can then be managed online, with no set limits on the amount you deposit each month. This gives parents the flexibility to save more in some months than others depending on their personal circumstances.
As mentioned in our previous blog, employers do not have a specific role in the Tax-Free Childcare Scheme, however it may be worthwhile assisting employees by providing advice on how to sign up for the scheme.
You may also wish to offer support to your employees who are signed up for the scheme by allowing them to make payments directly to their ‘Tax-Free Childcare’ account from their net pay each month.
If you would like more information on the various tax reliefs available for childcare, please contact Charlotte Stewart (firstname.lastname@example.org) or your usual AAB contact.