The government has announced plans to make childcare more affordable for millions of parents. It had already outlined a scheme to replace the existing childcare vouchers, and will now extend the scheme to offer a larger tax saving.
How will it work?
From autumn 2015 parents will be able to buy vouchers online to pay for childcare. For every 80p they spend, the government will add 20p. The scheme is available for up to £10,000 of childcare costs per child each year but there is no limit on how many children you can claim for.
In the case of a parent claiming the full £10,000, he or she will pay £8,000, while the government will give a £2,000 subsidy (previously the cap was £6,000, meaning a £1,200 tax subsidy). The vouchers, which will be held in an online account run by National Savings & Investments, can only be used to pay for Ofsted-regulated childcare, not for care provided by friends or relatives.
The scheme will work in quarterly entitlement periods – once eligible, parents will continue to be entitled to support for three months, regardless of any changes in circumstances. They can pay in a lump sum of £2,000 each quarter and get £500 from the government in one sum, or make monthly payments.
One parent will need to make the claim, but if they are part of a couple they will need to give details of their partner’s income.
Do I really have to reapply every three months?
You have to reconfirm that you still qualify, yes. The government says: “The quarterly reconfirmation process will mean that payments to ineligible parents will be significantly reduced, diminishing the need for parents to subsequently pay back money.” You will have a separate account for each child, but if you have more than one, the reconfirmation dates will be the same.
Can I get my money back?
Yes. You can withdraw money from the online account if you need to. The government will get its cash back at the same time – sadly, you won’t be able to withdraw that. If your circumstances change and you no longer qualify for the account, you can also keep using the money in it, including any you claimed from the government, for up to two years afterwards.
What happens if parents have split up?
Only one parent will be able to open an account, even if the child shares his or her time equally between both parents. If parents can not agree who will claim, HM Revenue & Customs will decide.
How old do my children have to be for me to qualify?
The scheme is designed to support childcare for under-12s. Eligibility will end in the first week of September following your child’s 11th birthday, unless the child is disabled, in which case they will qualify until they are 16. The age limit will be phased in over the first year: at launch only under-5s will qualify but by the end of the year it will apply to all under-12s.
Can I claim even if I am a 40% taxpayer?
Yes. Higher-rate taxpayers qualify for the same amount of government help as lower earners. One of the controversial aspects of the scheme is that it will be available to all parents earning up to £150,000, when the 50% tax rate kicks in. This means the government will be subsidising childcare for couples earning up to £299,999.98 between them.
How about if I receive other benefits?
Parents who receive support through tax credits or, later, the universal credit will not be able to use the vouchers. Instead the government will meet 85% of the costs of childcare for parents on universal credit, provided that both parents are working and earn more than the personal tax allowance, which is due to reach £10,000 by 2015.
My partner doesn’t work – do we still qualify?
Not unless he or she is a carer and receive Carer’s Allowance, or receives contributory Employment and Support Allowance. Where this isn’t the case, in a couple both parents have to be working in order for the family to qualify; in single-parent families the single parent must have a job. This is different from the current voucher scheme where help can be claimed even if only one of two parents is employed.
I am doing some work but not much – does that count?
The government seems to have listened to concerns about people who are returning to work after starting a family and will offer the scheme to anyone working at least eight hours a week on the minimum wage, or earning around £50, or just over £605 a quarter. Parents will have to declare that they expect their earned income to be above the minimum level over the quarterly entitlement period.
The scheme will also be open to people who are self-employed.
What if I take maternity leave?
If you qualified for the scheme before taking maternity or paternity leave or any other kind of paid parental leave you will continue to be eligible while you are not working.
Is this worse than the existing voucher scheme?
For some parents. The current voucher scheme, or Employer Supported Childcare scheme, allows parents to sacrifice part of their salary in exchange for childcare vouchers – in effect, this means they are paying for part of their childcare tax-free. The vouchers are worth up to £55 a week, or £243 a month. The saving in tax and national insurance contributions adds up to £933 a year, and because both parents can claim, the total saving can be almost £2,000 a year. Under the original plans for the new scheme all working couples with one child would have been worse off, but by raising the cap on costs from £6,000 to £10,000 the government has ensured that some parents can claim more. It says a working couple with one child will be £134 a year better off if they spend the maximum £10,000, while a working couple with three children will be £5,375 better off. A single parent with two children can claim £3,067 more a year.
If you are a working couple with one child paying around £5,000 a year for childcare, you will be worse off under the new scheme, because you can only claim 20% of your costs, or £1,000 a year. If you have two children, and spend £5,000 on each you will be better off.
Will the existing voucher scheme stop?
Not entirely. If you are a member and want to continue to use the scheme until your child reaches 15 you can – but only if you stay with the same employer. Workers can continue to sign up until the new scheme is introduced, but it will be phased out and the cash diverted to supporting the new policy. This means that eventually there will be no support for parents of children aged between 12 and 15, except where the child is disabled. Parents will not be able to claim vouchers under both systems at the same time, so you will need to make a choice.
Source Article from http://www.theguardian.com/money/2014/mar/18/new-childcare-vouchers-how-work
New childcare vouchers: all you need to know
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