Tax-Free Childcare Scheme for Working Parents

The team at Harvey Telford and Bates Chartered Accountants in Shrewsbury, Shropshire are delighted to share with their clients the new Tax-Free Childcare scheme is now available for eligible working parents. Read on to find out if your eligible to claim and how to apply.

When can you apply for the Tax-Free Childcare Scheme?

The scheme was first introduced in April 2017 and although there have been initial systems problems, HMRC aims to have the scheme open to all eligible parents by 14 February 2018. This means all eligible parents will be able to apply for Tax-Free Childcare before the end of this financial year. Parents are able to apply for all children at the same time, when the youngest child becomes eligible.

How much will you save using the Tax-Free Childcare Scheme?

Under Tax-Free Childcare, for every £8 the parent pays, the government provides a £2 top-up, to a maximum of £2,000 per child each year – with a higher limit of £4,000 for disabled children. This is the equivalent of the tax most people pay (20%) which gives the scheme its name, ‘tax-free’. This gives a total childcare pot of £10,000, or £20,000 for disabled children.

Who can apply for the Tax Free Childcare scheme?

Any working family can use Tax-Free Childcare, provided they meet the eligibility requirements. The scheme is also available for parents who are self-employed, unlike the current Employer-Supported Childcare scheme.

To qualify for the Tax Free Childcare scheme parents must generally have minimum weekly earnings of at least £120 each. There is also an upper earnings limit of £100,000. Compensation may be available in certain circumstances such as:

  • If a parent is unable to complete an application for Tax-Free Childcare;
  • If a parent is unable to access their childcare account;
  • Or a parent doesn’t get a decision about whether they are eligible, without explanation, for more than 20 days.

Those employing a nanny should be able to use the childcare account to pay their PAYE tax and National Insurance. Delays in getting this system working may also give grounds for compensation. The application for childcare service compensation can be made online on the government website.

How to apply for Tax-Free Childcare scheme?

The Tax-Free Childcare Application is made online through the Childcare Choices website or for more information read the governments guide here.