Working parents to get up to £2,000 for childcare

childcare tax break

Working parents will now get 20% of their annual childcare costs – up to £2,000 per child – paid for by the government in a bid to help stretched family budgets. But will all families benefit?

Working parents who earn £50 or more a week are to get childcare tax breaks worth as much as £2,000 a year per child, the government has announced.

Working parents will be able to claim as much as £2,000 a year per child from 2015

This includes parents who work part-time. Parents who are on maternity, paternity or adoption leave will also be able to take advantage of the tax break.

But before you get too excited, bear in mind that this tax break won’t come into force until September 2015.

Parents will be able to claim 20% of their yearly childcare costs up to a maximum sum of £10,000 a year per child.

How the new scheme will work

  • From 2015 working 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 worth of childcare costs per child each year.
  • So if you will pay £10,000 or more per child, the government will provide a £2,000 subsidy.
  • The vouchers can only be used to pay for Ofsted-regulated childcare (so can’t be used for care provided by friends or relatives).

So if you have one child you can claim up to £2,000 a year, if you have two children you get £4,000, three children £6,000, and so on.

Britain’s childcare costs are among the highest in the world, with a full-time nursery place for a two-year-old and a five-year-old setting families back an average of £11,700 a year, according to the Daycare Trust charity.

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Who will the scheme cover?

The tax break scheme will cover children up to 12-years-old.

The government says it expects the new tax-free childcare scheme to help 1.9 million families with children under the age of 12.

However, the key phrase here is ‘working’ families.

The problem for stay-at-home parents

In order to qualify for the tax break, both parents will need to be in work (or the one parent in the case of lone parent families).

This means that in two-parent families where one parent does not work, families will not receive the tax break.

The government has faced criticism that this is discriminating against the 1.2 million families with stay-at-home mums and dads – especially when many of those families will have had their child benefit reduced or stopped altogether.

Better than the voucher system?

Under the current employer childcare voucher scheme, parents can receive vouchers for childcare worth up to £55 a week. This money is then deducted from your salary before tax is paid.

The saving in tax is worth around £900 a year for a basic-rate taxpayer. Where both parents work, families can save about £1,800 a year.

However, many employers don’t offer a voucher system – so the fact that this new tax break will apply to millions of families can only be a good thing.

What if I currently claim childcare vouchers?

Under the government’s proposals, the current employer supported voucher scheme will continue but will not be open to new members from August 2015.

Families receiving childcare vouchers will be able to continue receiving them, or you can transfer to the new scheme.  You will not be able to take advantage of both schemes, though.

Winners under the new system

  • Families whose employers don’t offer a childcare voucher scheme
  • Parents who are self-employed (as the self-employed aren’t eligible for the current voucher scheme)
  • Single working parents with more than one child (as they’ll be paid per child instead of per household)

Losers under the new system

  • Stay-at-home mums and dads
  • Parents of teenagers – under the new scheme, benefits will stop at 12 rather than 16

What can be done about childcare costs now?

Aside from employer childcare voucher schemes mentioned above, there are other ways you can help cut your childcare costs now.

What do you think of the government’s childcare plans? Will it help you and your family? Let us know your thoughts below!