Tax Free Childcare Accounts are round the corner

This is a new scheme being set up by the government in order to replace childcare vouchers offered by employers. To be able to get tax free childcare, an account needs to be set up by the parents of a child in order that what ever money is paid into the account, the government will top it up by 20% to a maximum of £2000 per qualifying child (£4000 for a disabled child), so that means a maximum of £8000 can be placed into the account and £2000 by the government per child per tax year. (There is a maximum of £500 per quarter for the government payments into the account). This is not an employer scheme so comes out of tax pay, and is open to the self employed to start up, and other people can pay into the account – such as grandparents.

Of course, there are conditions:
– Both parents must have earnings of at least 16 hours a week at the national minimum, and a maximum earnings per parent of £100,000;
– If a parent is in employment and they decide to opt for the scheme, they need to come out of the employers childcare voucher system;
– The scheme only covers children up to the age of 12 compared to 15 under the childcare vouchers;
– The childcare provider must be registered with the new scheme;
– The parent needs to log into the online account and make payments directly to that account. They cannot pay the provider and then take the money out personally.
– Should money be taken out that is used for non-registered providers or for other use, HMRC will penalise the account and take back 20%, but that clawback is actually worth more than the money put in initially – so beware.

The launch date is supposed to be April 2017 for the youngest child and a full roll out by April 2018, but this scheme has been stalled for a couple of years, so keep your eyes open for this.

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