The New Tax-Free Childcare Scheme – how will it help contractors?
The recent Budget revealed more details about the new Tax-Free Childcare scheme, but what does this mean for contractors? Well the good news is, unless you want to, you’ll no longer have to mess around with childcare vouchers or setting up an Employer’s Scheme when you might be the only employee! And, perhaps most importantly, you will get more through the new Scheme.
The changes are a little way away yet and if you’re already an Intouch client, your Personal Accountant will be able to offer you advice and guidance nearer the time of the scheme being rolled out.
In this blog we address the top 12 questions contractors and freelancers will want answers to now.
1. When does it launch?
The scheme will start being rolled out from early 2017, firstly to those parents with youngest children.
You will be able to open an account online, which you can pay into for the cost of your childcare with your chosen registered provider. As soon as your youngest child becomes eligible you will be able to apply for any other children you may have.
2. How will the government support it?
For every 80p you pay in, the government will add 20p. They will top up the account with 20% of childcare costs up total of £10,000. That’s the equivalent of up to £2,000 per child, or £4,000 per child with a disability.
3. What’s the cut-off age?
Children up to the age of 12 and children with a disability up to the age of 17.
4. Who is it available to?
Parents who work and where individual earnings equal approximately £115 per week and not more than £100,000 per year.
5. What about your employer?
Unlike the current Employer-Supported Childcare scheme, you don’t need to rely on your employer to offer the new scheme to you. Any family that qualifies (see question 4) can apply. So if you run your own Limited Company you won’t have to go through the additional administration of setting up an employer-run scheme when you might be the only employee.
6. What about self-employed parents?
Freelancers are not being left out. Self-employed parents can get support through the new Tax-Free Childcare scheme.
A ‘start-up’ period will be introduced by the government, to ensure that those parents who are self-employed won’t have to reach the minimum weekly earnings threshold of £115. If parents are on paid or unpaid paternity/ maternity leave, paid sick leave, or adoption leave then they too will be eligible.
7. What’s happening to the Employer-Supported Childcare scheme?
Employer-Supported Childcare (childcare vouchers) will continue to run but won’t be available to new entrants from April 2018. If you’re planning on using it past this date, then you can continue to do so for as long as your employer offers it.
You don’t have to move across to Tax-Free Childcare, although the government predicts that it will be open to more than twice the number of parents as Employer-Supported Childcare.
8. Can other people pay into your childcare account?
Yes! If you have generous family members or friends then they can contribute.
9. What about the free childcare entitlement?
The new Tax-Free Childcare scheme will run alongside the 50% increase to free childcare (to 30 hours per week) for working families with three and four year olds from September 2017.
10. Will it be complicated to use?
The government intend to make the process as simple as possible. You will have to reconfirm your circumstances every three months.
11. What if you don’t use the money you put into your account?
If you decide to stop using the scheme, or if your circumstances change, you can withdraw the money from your account whenever you wish. You will, however, lose the money the government has contributed towards your payments.
12. Which scheme is best for you?
This all depends on your circumstances, but here’s a quick overview:
Tax-Free Childcare – who wins?
- Self-employed people or couples earning less than £100,000 each. They are eligible for this scheme but can’t get childcare vouchers
- Parents who have more than one child and whose childcare costs are high. Under this scheme help increases with the number of children, unlike vouchers which are limited regardless of the number of children.
Childcare vouchers – who wins?
- For those earning between £100,000 and £150,000 the vouchers are the better option.
- Couples where one parent doesn’t work – although they are not eligible for Tax-Free Childcare, the employed parent is eligible for vouchers.
- Basic rate taxpayers who pay less than £9,336 in childcare costs. Below this threshold the amount you save with vouchers exceeds the amount you can save with Tax-Free Childcare.
- Higher rate taxpayers who pay less than £6,252 in childcare costs. Below this threshold the amount you save with vouchers exceeds the amount you can save with Tax-Free Childcare.
- Additional-rate taxpayers – anyone earning £150,000 or more isn’t eligible for the scheme but additional-rate taxpayers can claim vouchers.
Find out more about childcare vouchers.
So what’s next?
More information will be made available ahead of the scheme’s launch and Intouch Accounting will be first to announce any developments, so keep a close eye on our blog section for the latest updates.
We know how important preparation is when you’re contracting whilst looking after a family, that’s why we’re here to inform and aid you in any way we can. Got questions about the new scheme? Simply leave us a comment and we will get back to you.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.