10:27 GMT, 12 August 2013
10:58 GMT, 12 August 2013
You’re having a baby! Time to make a birth plan, design the nursery and prepare for the sleepless nights – and if you are going to return to work at some point steel yourself for hefty childcare bills.
Becoming a parent will change your life physically, emotionally and financially.
One of the biggest costs for working families ends up being childcare, on average a full-time place costs £11,000 a year and if you live in London it ends up being £14,000.
Fortunately, there are ways to trim the bill, we explain how.
Cash machine: The average cost of raising a child is £10,000 a year
The high cost of childcare in Britain leaves many parents facing the
problem of needing to go back to work to earn money to keep their family
afloat, but earning very little once essential childcare is taken into
Nursery costs rose by 5 per cent last year, according to the Family and Childcare Trust report, faster than both inflation over the same period of 2.7 per cent and wages, which for many have remained stagnant.
The £11,000 a year average cost of a nursery becomes even more expensive if you live in London or South East where you could face costs of on average £14,000.
If you had two children in nursery in London full time you would need a spare £28,000, more than the average salary in the UK.
Nurseries argue that they play an important part in early years education, not just a place to leave your kids. But to put these figures into perspective, sending your child to a private school when they are old enough would cost on average £9,000 a year, according to The Independent Schools Council.
Childcare: nursery vs childminder
someone to look after your child is one of the biggest costs you will
face as a parent. Relatives and friends can be a good source of free
babysitting but may not be able to provide regular care.
According to LV= it is the second biggest cost after education, which is inflated because of rising tuition fees.
Research by the Family and Daycare Trust
shows the average cost of a nursery place for a child under two is now
£4.26 per hour across Britain.
London, the average cost of a nursery place is higher. For a child under
two it is now £5.33 per hour.
Mind the brat: Childcare costs can mount up
to the charity, the average annual cost of a childminder looking after a
child under two in England is now £3.93 per hour across Britain.
Childminders who pick up children after school charge on average £72.78
main difference between a childminder and a nursery is that a
childminder provides a home-from-home setting, while a nursery may have
more staff and a greater educational aspect.
What about a nanny?
Alternatively, you could use a nanny to look after your child.
nanny would usually look after the child in your house, or sometimes
live with you.
Nannies can cost between £250 – £500 per week depending
on their duties.
This could be more convenient if there are no nurseries or childminders nearby, also you may find that you can share the costs with another set of parents if you have a nanny that will look after more than just your child or children.
you will be their employer you may need to pay their tax and national
insurance, as well as possibly pension auto-enrolment contributions
eventually. Read HMRC’s guidelines on this.
A nanny would
provide one-to-one care for your child, while a nursery or childminder
gives your child a more social environment with other children.
and nurseries need to be registered with Ofsted while nannies can do so
voluntarily. All can provide an educational programme for children and
the main factors in deciding which one to choose will be convenience,
opening times, location and cost.
Expenses: Data from LV= shows education and childcare are the biggest costs when raising a child
How your employer can help with the costs of raising a child
Childcare vouchers can be used by parents as a contribution towards nursery, childminder or nanny costs.
They can currently be accessed through employers. Not all businesses offer childcare vouchers but if yours does, it is well worth signing up for.
Childcare vouchers work through salary sacrifice. You agree to give up an amount of your salary equivalent to the cost of the vouchers. This is then taken out of your salary before any income tax or national insurance is taken.
The employer will give you physical or electronic vouchers which are then used to pay the childcare provider.
This is a more cost-effective way of paying for childcare as the amount is taken pre-tax. You are therefore saving on NI and income tax contributions. If both parents work for an employer offering schemes, you can both claim, effectively doubling your savings.
You don’t even have to wait until you return to work. Parents are allowed to claim and build up their vouchers from when the child is born.
As long as you are using a registered childminder, nursery or nanny you should be able to use the vouchers to pay, but make sure your employer’s scheme doesn’t have restrictions on where they can be spent.
All parents could receive up to £55 per week (£243 per month) of vouchers which are exempt from tax and national insurance. This limit also applies to higher rate taxpayers who were members of a scheme before 5 April 2011. Those who joined after this date had their allowance dropped.
The limits are currently:
£55 a week for a basic 20 per cent rate taxpayer – adding up to tax relief of £930 per parent.
£28 a week for 40 per cent higher rate taxpayer – adding up to tax relief of £620 per parent.
£22 a week for a 50 per cent top rate taxpayer – adding up to tax relief of £600 per parent.
This adds up to a maximum £1,860 a year for a family with two working parents and covers children up to the age of 15.
However, this scheme may not last forever so opt-in while you can.
Regional rearing: London and the South-East of England are priciest areas to raise a child
The government’s new plan to help with the cost of raising a child
government is setting up a new tax-free childcare scheme from 2015 that
will cover 20 per cent of working families’ childcare costs up to a limit
of £6,000. This amounts to £1,200 per child each year.
scheme will replace the old childcare voucher system operated
through employers. The old scheme will remain open for existing users
but closed to new entrants.
the new scheme will automatically include all families with children
under five and by 2020 it will be rolled out to include all
children under 12.
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.
Who is eligible?
where both parents work will qualify for the scheme, each must work at
least 16 hours a week. So controversially those families where one parent stays at home
to concentrate on childcare will not be able to receive payments even if they decide to send their child to nursery to help them educationally or socially.
Single parents must be working to get the help.
are eligible as long as neither parent earns more than £150,000 or
receives tax credits. This means that a couple could earn up to £300,000
a year and still join the system.
The Government is also extending working tax credit for those on lower incomes who work fewer than 16 hours a week.
Free nursery education for three-year-olds
Free nursery education can be claimed by parents for all three and four-year-olds up to a maximum of 15 hours per week.
In practice, however, taking advantage can be tricky. You need to either find a place at a local authority run nursery or qualifying private nursery and hours must be spread over a minimum number of sessions.
The places are available throughout England for 15 hours per week, for 38 weeks per year, usually only available in term time.
This starts in the term after your child’s third birthday. The Daycare Trust explains: ‘The free places can be provided for 3 hours per day for 5 days per week, or 5 hours per day for 3 days per week.
From September 2012, childcare providers can offer the full 15 hours over 2 days per week, but not all childcare providers will do so.’
This means that parents whose children only go to nursery part-time, for example two days per week, cannot use the full 15 hours to cover them.
TAX FREE VS EMPLOYER SUPPORTED CHILDCARE
Access to employer supported
childcare vouchers has always been down to an individual company.
all businesses offer access to childcare vouchers to their staff and if
you were self-employed you could not get them.
the new system aims to help to up to 2.5million families, it is not
open to everyone. It excludes those earning more than £150,000 but what will hit more people is that
both parents are required to be in employment.
Critics say it penalises
stay-at-home parents who choose not to work or cannot afford to return
to the workplace due to the high cost of childcare and lower earnings.
The old system was available up to age 15, while the new one will go to age 12, or 17 for a disabled child.
The new system will be based on the number of children rather than each parent.
Will I lose out?
It entirely depends on your family setup, whether you are in work and if an employer offered the vouchers in the first place.
example, if you’re a parent paying higher rate tax with a two-year-old
child, under the old scheme, if you registered before April
2011, you will be receiving up to £55 a week in vouchers, which includes
tax relief worth £930 a year.
the current plans for the new scheme you would receive the full £1,200
as long as you spent at least £6,000 per year on childcare.
if you are a two-parent family with a two-year-old child, under the old
scheme, as long as you both registered before April 2011, you will be
receiving up to £110 a week in vouchers – which includes tax relief
worth £1,860 a year.
If you had two children the new system could get you up to £2,400 per year.
Child benefit: an extra helping hand
Parents are entitled to claim child benefit from when their child is born.
The amount of child benefit you will receive depends on how many children you have and your income.
The current rate is £20.30 a week for a first child and £13.40 for the second.
However, if one of the parents earns
more than £50,000, they will have to pay a 1 per cent charge for every
£100 they earn above that level until it vanishes at £60,000.
You will have to complete a self-assessment form to cover this charge unless you opt out of receiving the benefit
This may mean that some parents find the tax charge doesn’t make receiving child benefit worthwhile.
PARENTS SHOULD MAKE THE MOST OF THE HELP ON OFFER
Andrew Minsky, of accountancy firm Nyman Linden, says: ‘Raising a child is an expensive time
but there are ways of saving money through the tax system and making the
most of allowances such as tax credits, vouchers and child benefit.
‘These benefits are becoming more
restricted for high earners but there are ways to lower your assessed
income for these purposes such as increasing your pension contributions –
in order to help you qualify for some these benefits.’
HMRC has a calculator where you can see how much tax you would have to pay on child benefit
Child tax credits
Child tax credits help pay for up to 70 per cent of childcare costs and are paid in addition to child benefit.
they are available to lower income earners but a parent does not have
to be in work to claim and the rate payable depends on a family’s
A maximum £122.50 can be claimed per week for one child or £210 a week for two or more children.
Claiming can be complicated as it is usually based on the previous tax year’s earnings.
How you can cut the costs of raising a child
As a new parent your weekly shop will quickly become full of nappies, baby wipes and milk formula. But some shrewd shopping can help cut these costs.
Shops such as Boots, Sainsbury’s and Mothercare have parenting clubs. Signing up to these schemes can give you access to discounts on baby food and nappies. Organisations such as Bounty also offer new parent packs.
When it comes to weaning your child from milk to normal food, consider making it yourself rather than spending too much on jars and ready-made products.
You may also find other parents selling or giving away prams, clothes, cribs or accessories that they no longer need on parenting forums and other social media. Remember, your baby doesn’t care if his or her baby grow costs £5 or £50.
Investing and saving for your children
There are a number of tools and products to help you put money aside for your child.
You could put up to £3,600 a year into a Junior Isas for those aged 17 or under, which builds up tax-free. This can then be accessed by your child when they are older and help pay for items such as a car, house deposit or university.
Savings accounts for children can also be exempt from tax on interest below certain levels.
There are also children savings plans run by asset managers. You could also put £3,600 into a stocks and shares ISA in your child’s name. The before of this over a Junior Isa is there is wider fund choice.
Another way of saving money is to use your annual inheritance tax allowances to gift to a child or grandchild.
Source Article from http://www.dailymail.co.uk/money/bills/article-2385465/How-cut-childcare-costs-vouchers-work.html?ITO=1490&ns_mchannel=rss&ns_campaign=1490
How to cut your childcare costs and how vouchers work
childcare – Yahoo! News Search Results
childcare – Yahoo! News Search Results