Covid-19 : How Childcare Schemes Can Help Parents Return to Work
As employers encourage staff to return and the self- employed reopen their businesses, but with many schools closed and grandparents unable to provide childcare, more parents may need to take advantage of subsidised childcare.
Tax Free Childcare accounts have been available since 2017 and were extended to the parents of older children (under 12, 17 if the child has a disability) in 2018. Despite the generous 20% subsidy offered by Government only 218,000 of the 1.3 million families eligible have claimed so far, according to HMRC statistics as at April 2020.
Tax free childcare accounts provide a Government top up to savings made into the account which can be used to pay for childcare with providers registered with the scheme. These include childminders, nurseries, nannies, wraparound care provided by schools, playschemes and clubs and home carers. For every £8 saved the Government adds £2 up to a maximum of £500 per quarter and £2,000 per year. Each child qualifies for this subsidy, so larger families can benefit the most. Children in receipt of disability living allowance or personal independence payments qualify for up to £4,000 per year subsidy. This is in addition to the 30 hours of weekly tax-free childcare provided to all 3- and 4-year olds. Adopted children are eligible but foster children are not.
With childcare costs likely to increase, due to social distancing requirements, it is likely many more parents could benefit from this scheme. To be eligible both parents, or partners of parents, must be in work and usually each earning £139.52 or more per week. Self- employed individuals also qualify if their average profits are above these figures. As a temporary measure during the Covid 19 emergency the minimum earnings requirement for this and the 30 hours of free childcare for 3-4-year olds has been eased until 31 August. *
Parents not in work may also qualify, if claiming working age disability benefits or on sick leave or maternity leave. Only one parent may claim and separated, or divorced parents need to agree who this should be, if they cannot, the family court will decide.
Parents or their partners, where one earns more than £100,000 per year are not eligible unless they are critical workers. Neither are parents who are in receipt of childcare vouchers from their employer. Parents who are in receipt of some working tax credits could also be better off retaining them as some pay up to 85% of all childcare costs and claiming a tax-free Childcare account could result in the loss of these.
Eligible parents should check their care provider is an approved childcare provider before opening an account to start saving via the Government website www.gov.uk/help-with-childcare-costs. The Government top ups are paid quarterly, and parents need to update their eligibility every 3 months. With rising numbers of parents in work it is surprising that more families do not take advantage of this scheme, which for a 2-child family could save up to £4,000 a year.
Those with income above £100,000 may be able to become eligible by diverting some of their earnings/profits into pension savings, which reduce their income for this purpose. If earnings will be lower this year, due to receiving less than normal earnings or profits, they could open an account for this tax year only. Other parents in receipt of Childcare Vouchers need to consider whether they may be better off with Tax Free Childcare, this will depend on personal circumstances. Tax Free Childcare Account or Childcare Vouchers – which is best?
*Dept for Education Eligibility for Government Childcare Offers Protected 5.5.20
Director of Public Policy
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