Martin Lewis – Childcare

By Martin Lewis @moneysavingexpert – This is an important warning for anyone who pays for childcare. There are major changes due to take place to the system this year – and you need to decide rather soon how they affect you. If you leave it too late, you could miss out on thousands of pounds.

Are you eligible for childcare tax credits?

The most important start point is to check if you’re entitled to what’s technically called the ‘Childcare Element of Working Tax Credit’ – this is NOT the same as Child Tax Credit. You can usually claim it for children up to age 15, provided you pay for approved (Ofsted or equivalent) childcare.
Sadly the eligibility criteria are very complex. So I’ve tried to distil it in a simple rule of thumb: ‘if you’re a single parent working 16+ hours a week, or a couple BOTH working 16+ hours a week, and your total household income is under £46,000, you should definitely check out if you’re entitled.’
Please read this carefully – I’m not saying you are entitled, just that it is worth checking, as this is big money. The average pay out is around £60/week. That’s over £3,000/year.

If you’re not entitled to tax credits, decide now which other scheme works for you

This is where everything is changing. If you’re eligible for tax credits, you’re likely to be better off getting that. If not, there are other schemes to look at.
This autumn, the new ‘tax-free childcare’ scheme launches and the current childcare vouchers scheme that lets many pay for childcare from their pre-tax income will close for new applicants. So if you’re eligible for vouchers, but won’t be for the new scheme, get in quick.
– New tax-free childcare scheme: If you’re a single parent who works, or a couple where BOTH work, and you each earn under £150,000, for every 80p you put in a new childcare account, the government will add 20p on top which can be used to pay for Ofsted approved (or equivalent) childcare for under-12s. The maximum the Government will contribute is £2,000 per child per year.

Most childminders, after-school clubs are Ofsted approved, as are many nannies.
– Current childcare voucher scheme. Here you usually trade in your pre-tax salary for vouchers. For example, a basic-rate taxpayer can swap £1,000 of salary, which after tax and National Insurance is only £700ish in your pay packet, for £1,000 in childcare vouchers. So you’re up £300 per £1,000.

The maximum you can get is £55/week per year per parent, which would be a gain of £930 for a basic-rate taxpayer. Any parent can do this, even if their partner doesn’t work, provided your employer offers it (many do, but many don’t). Yet if you’re not signed up to this by the time the new scheme starts, you can’t do it after. So if it’s right for you – sort it soon.

– Tax-free childcare vs childcare vouchers. If you’re a couple where only one works, the vouchers win hands down, as you won’t be eligible for the new scheme. Plus, if your childcare costs are low, it’s likely vouchers win due to the tax and National Insurance savings.

Yet for the self-employed, those whose firms don’t offer the vouchers, or those with more than one child and high childcare costs, the new scheme wins. This is just the tip of the iceberg – full analysis of which wins at mse.me/childcare.

What about free childcare for three and four year-olds?

The Government have announced plans to give working parents with three and four-year-olds 30 hours of free childcare per week. If made law, pilot schemes will start in Sep 2016, though there’s scepticism about whether it’s deliverable. Yet already for at least 38 weeks a year (each week of the school year), if you’ve a three or four-year-old, you’re entitled to 15 hours a week of free childcare. Families with a low income may also get free early education for two-year-olds.
Contact your local council to check if your child qualifies at (a good place to start is gov.uk/find-free-early-education). If they do, go to finder.familyandchildcaretrust.org for info on which childcare providers you can use under the scheme. You then liaise directly with the provider to get the free childcare.

Is there help for paying for summer schools?

If you’ve got older children and work, check whether there are any summer schools in your area that they can go to. Some schools, community centres and youth groups have their own schemes. Most are Ofsted (or equivalent) registered, so if you pay for them, you qualify for childcare tax credit or you can use childcare vouchers to pay for them.