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Tax-Free Childcare: consultation

The government has recently issued a consultation document on the provision for tax-free childcare.

The government has stated its commitment to promoting aspiration, rewarding work, and supporting households’ standard of living.  It recognises the challenge of the high cost of childcare, hence its announced intention to support working families with their childcare costs.

The government will provide 20% of working families’ childcare costs, subject to an annual limit of £1,200 contribution for each child to be phased in from 2015 (this is equivalent to basic rate tax relief of childcare costs up to £6,000 a year).

Under Tax-Free Childcare, parents will register with a voucher provider and open an online account.  The government will then ‘top up’ payments into this account at a rate of 20p for every 80p that families pay in, subject to the above limit.

Households in which all parents work but do not receive support through tax credits (or Universal Credit) will be eligible for Tax-Free Childcare, so long as neither parent is an additional rate taxpayer.  Households that receive tax credits or Universal Credit will get support through those systems.

Tax-Free Childcare will be delivered by HM Revenue & Customs, and will ultimately be available to up to around 2.5 million working families in the UK.  Employer-Supported Childcare will therefore be phased out, though existing members of Employer-Supported Childcare will be able to choose whether to remain on their current scheme or move to Tax-Free Childcare.  The government has committed to explore how employers can continue to play a role in supporting their employees with childcare costs under Tax-Free Childcare.

For full details on the consultation see HM Treasury website.
 

 

 

Date: 10th September, 2013
Author: Cathy Corns

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