Following proposals from the government, tax-free childcare will become available to nearly two million households in August 2015.
With many parents now spending 28 per cent of their annual household income on their children, the cost of raising a child has now reached a staggering £227,266. According to the annual ‘Cost of a Child’ report from LV, the cost of childcare for children aged less than a year old has risen by 7 per cent, up from £6,191 to £6,623.
LV=’s report also revealed that with parents having to pay approximately £66,000 per child for childcare costs, many working parents have to stretch their budgets in order to cover such essentials.
What is the tax-free childcare scheme?
The Tax-Free Childcare scheme is a money-back system that gives working parents 20 per cent off annual childcare costs. This could add up to £2,000 per child per year.
For every 80 pence that a parent pays in, the government will top this figure up by 20 pence to cover the amount of tax that is usually paid.
To access the scheme, both parents in the family must be working, or in single parent families, the sole parent must be in work and earning an average of £50 a week or more.
Parents on maternity or paternity leave will also be able to use the tax-free scheme, providing they were eligible before they started their maternity/paternity leave.
Each parent must earn less than £150,000 a year. So two parents in one family each earning £149,999 will still be eligible, as will self-employed parents providing their income doesn’t exceed this figure.
The scheme is available for children up to the age of 12 or for children with disabilities up to the age of 17.
Who isn’t eligible?
Parents who are currently eligible for tax credits will not have access to the scheme, nor will families with two parents but only one parent working.
However, a spokesperson for the Deputy Prime Minister’s Office said that other exemptions are expected. They said: “For example, where one parent is unable to work as they are a carer or disabled or in full-time education”.
What other childcare schemes are available?
Employer Supported Childcare (ESC) is another scheme designed to help with childcare costs. ESC is a scheme where employers have the opportunity to help with employees’ childcare costs. This assistance may consist of childcare vouchers, directly contracted childcare or work place childcare provision. Unlike the new scheme, which should be rolled out in August, ESC is available now. Parents can continue to sign up for the ESC scheme up until autumn 2015, but after this only the new scheme is available for new applicants.
Parents already using the employer funded scheme will be able to continue their current arrangement if they wish. However, with only a selection of employers currently supporting the ESC scheme, the new tax-free childcare option will be compulsory for employers.
How can parents access the new scheme?
The new scheme will consist of an online voucher system. Parents will be able to register online and pay money into an account when they wish. The 20 per cent top up will then be added by the government.
This online system should offer parents more flexibility by giving them the opportunity to choose how much money they put into the scheme. Parents aren’t the only ones who can pay into the account; grandparents, family members and even employers can pay into it too.
Aldermore Bank is a UK provider of personal savings accounts, so if you’re looking for somewhere to save for childcare costs or just want to grow funds for the future, please don’t hesitate to get in touch. With Aldermore you can enjoy some of the highest and most consistent interest rateson the market so that you can optimise your savings and make your money go further.
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