New childcare rules

The government is consulting on plans to introduce a tax-free childcare scheme for working families despite cutting the child benefit scheme for higher paid earners earlier this year. Under the outlined proposals, the scheme will be available for couples earning up to £300,000 say Harris & Co chartered accountants Northampton, the specialist small business accountants.

The tax-free childcare scheme will provide 20% of working families’ childcare costs, up to £1,200 for each child, equivalent to basic rate tax relief on money spent on childcare up to £6,000 a year. It will be available to households in which both parents work but do not receive support through tax credits (or Universal Credit), as long as neither parent is an additional rate taxpayer at 45%.

Tax-free childcare will be phased in from autumn 2015 and parents will have to register with a voucher provider and open an online account which the government will ‘top up’ at a rate of 20p for every 80p that families pay in, subject to the £6,000 cap.

The voucher provider will then issue a voucher to the value of the contributions, which the family can use to pay for qualifying childcare. Children up to age five – and disabled children under the age of 17 – will be eligible from the first year of operation, with the scheme building up over time to include children under 12.

Households that receive tax credits or Universal Credit will continue to get support through those systems. The rate of the Universal Credit childcare element will be increased from 70% to 85% for households where both parents pay income tax.

This consultation sets out the eligibility criteria, the approach to managing voucher accounts for each child and validation processes. Views are sought from families, the childcare industry, the childcare voucher industry and employers.

The consultation is open for comment until 14 October 2013. More details are available from gov.uk HERE