Changes to tax-free childcare – an update

Changes to tax-free childcare were announced in the Autumn Statement 2013, with further proposals announced in this year’s March Budget.

It is proposed that the current system of tax-free childcare vouchers is phased out to make way for a new tax-free childcare scheme, open to children under the age of twelve and effective from Autumn 2015. The government plans to give relief of 20% of the yearly childcare costs up to a maximum of £10,000 per child. This means that there is scope to receive up to £2,000 towards qualifying childcare costs, per child. The system will see parents make contributions into an online account and the government will top them up. For every 80p paid in by a parent, the government will contribute 20p (subject to the cap).

The original proposals were to provide a maximum contribution of £1,200 but following a consultation process in August 2013, this amount was increased.

To be eligible under the proposed scheme,

  • Both parents must work (or one parent if a lone parent family)
  • Each parent must earn less than £150,000 per annum, from all sources of income
  • Each parent must earn at least £50 per week
  • Neither parent can be in receipt of tax credits or Universal Credit

The logistics of how the scheme will be operated are still not clear, however, it looks like an online account will be opened for each child into which both parents and the government contribute. The government is currently looking at various options including delivering the scheme through HMRC or National Savings & Investments (NS&I).

Now that the various consultation processes have ended, the government is expected to announce its final decision on the provision of tax-free childcare accounts later this year.

If you would like to discuss how the proposed changes affect you, please contact Helen Sewell at [email protected].