Saturday, 23 March 2013

New Tax-free Scheme Explained



Childcare costs are on the rise with average nursery fees costing £632 per month.  The government has announced a new childcare funding system which can help to reduce these costs.  The new scheme, available from Autumn 2015, will mean funding is offered to households where both parents work and to single parents who work.  The funding will be allocated per child.

The new scheme will eventually replace the current Childcare voucher scheme.  Parents can continue to benefit from the savings provided by Childcare Vouchers for a period of five years after the new scheme has been implemented. 

The new funding arrangements will be open to more parents; those employed, self-employed and parents on low incomes or minimum wage will be eligible to use the funding. 

How will the new scheme work?
·         The government will be subsidising 20% towards a child’s registered childcare costs.  The remaining 80% will be paid by parents.  So, in effect, for every £100 paid for childcare parents pay £80 and the government pay £20. 

·         Parents will be able to save up to £1,200 per child, per year (the 20% subsidised funding is capped on childcare costing up to £6,000 per child, per year).

·         Parents do not have to rely on employers to offer the scheme; they will be able to choose a voucher provider to manage the funds received from the government, selecting the one which best suits their family needs.

·         Voucher providers collate the funds from the government to pay registered childcare providers directly.

Take advantage of savings available now
As Childcare Vouchers will still be in existence for some time to come, parents should join their employers Childcare Voucher scheme to save up to £933 per year on the cost of childcare (over £1,800 if both parents join a scheme.)

If your employer does not run a scheme; contact us with your employer’s details and we will contact them to set up a scheme – click here to contact us.

What do the changes mean for employers?
The new scheme will not be offered by employers.  However, to help employees maintain their rights to the maximum support available through Childcare Vouchers, employers should continue to offer Childcare Vouchers to its employees.  As an organisation you will also be able to save over £400* per employee, per year as Childcare Vouchers do not attract Employers National Insurance contributions.

If you are an employer and do not currently run a scheme, contact us to set and help your employees to save money on their childcare costs.

For more information visit www.busybeesbenefits.com.

*Subject to individual circumstances.
The table below shows different types of family and the savings they will make using the Tax-free Childcare Scheme vs the Childcare Voucher scheme. Where numbers appear in red, the family will be better off continuing to receive childcare vouchers. These savings assume both parents claim childcare vouchers and all children are under 5. The effect on Additional Rate Tax payers has been excluded but these parents will always be better under the existing scheme. For families with children using childcare above and over 5 a more detailed analysis will be required as savings will depend on costs.

Maximum Savings from Childcare Vouchers
Maximum Savings from Tax-free Childcare Scheme
Difference
Basic Rate
Higher Rate
Basic Rate
Higher Rate
Basic Rate
Higher Rate
2 Working Parents
1 Child in childcare
1866
1249
1200
1200
-666.00
-49.00
2 Working Parents
2 Children  in childcare
1866
1248
2400
2400
+534.00
+1152.00
Single Parent
1 Child in childcare
933
624
1200
1200
+267.00
+576.00
Single Parent
2 Children in Childcare
933
624
2400
2400
+1467.00
+1776.00
2 Parents only one working
1 Child in childcare
933
624
0
0
-933.00
-624.00
2 Parents only one working
2 Children in childcare
933
624
0
0
-933.00
-624.00

4 comments:

  1. This is very misleading. You have to be spending £6000 a year per child on care to making the saving illustrated for the new scheme. If you only spend £1249 a year on the current scheme then you'll lose £999 on the new scheme. Previously the tax break covered the cost,now the gov will contribute only 20% of costs.

    It's not that straight forward...

    ReplyDelete
    Replies
    1. The table above shows the maximum savings available.

      There will be families who will lose out with the new scheme. We are trying to get parents to join Childcare Voucher schemes now to ensure for five years after the new scheme is in place, parents will be able to get the maximum savings for their family.

      We hope this helps.

      Busy Bees Benefits

      Delete
  2. Very confusing! I have 2 children over 5 will I be able to continue to have childcare vouchers indefinitely. You state above a more detailed analysis required for children over 5 - how do I get this?

    ReplyDelete
    Replies
    1. As long as you have at least one deduction for childcare vouchers from your wages each tax year, you will be able to continue to have childcare vouchers for five years after the new scheme has been implemented.

      As the new scheme is only available for children under the age of five, parents using childcare vouchers, as you will know have their earnings assessed to calculate how much they can take in childcare vouchers. Therefore, the savings table is the maximum a family could take - your individual circumstances could mean your families will differ to those shown above.

      We hope this helps.

      Busy Bees Benefits

      Delete