Tuesday, 9 June 2015

Tax-free Childcare hits middle earners

Tax-free Childcare hits middle earners

The countdown has begun to the introduction of the Government’s Tax-free Childcare scheme, which is due to be launched in the autumn.  The scheme will see the Government subsidising 20% of a child’s childcare costs, providing savings of up to £2,000 each year to help working parents save money on their childcare.  However, the scheme will mainly benefit high earners with high childcare costs.

Low income parents will still be able to get Working Tax Credits to help with their childcare, but what about middle income families?

John Woodward, Busy Bees Benefits CEO explains “we have been helping parents to work out which scheme will be best for them based on their incomes and childcare costs, finding that the majority of middle income families are better off using Childcare Vouchers.” 

The main issue with Tax-free Childcare is that parents are reading about savings of £2,000 per child each year.   However, in reality, many don’t realise that they would actually only get the maximum saving if their childcare costs are over £10,000 per child each year.  If both parents use Childcare Vouchers, they could save up to £1,866 per year, whilst only spending £5,832 on their childcare costs.

In the Family and Childcare Trust’s Childcare Cost Survey 2015*, it was reported that the average annual cost for a two-year-old going to nursery part-time (25-hours per week), is £6,000.  This indicates that the average parent will be worse off using Tax-free Childcare as they would only save £1,200 per child, compared to £1,866 available through Childcare Vouchers. 
With the announcement that the Government will be increasing free childcare to 30-hours for all 3 and 4 year olds before 2017, now is the time for parents to consider what their childcare requirements and costs are likely to be going forward so they can work out which scheme is going to be best for them, as the expected reduction in childcare costs will mean many will be better off with Childcare Vouchers.

Those using Childcare Vouchers will have the right to choose which scheme is best for them from the autumn.  If their circumstances change, they can opt to move to Tax-free Childcare, however they cannot switch back.  Those who do not get on a Childcare Voucher scheme before the autumn, will only have the option of using Tax-free Childcare to save money on their childcare costs.

Parents are therefore being urged to join their employer’s Childcare Voucher scheme now as Tax-free Childcare will see the closure of the current scheme.  This means that only those who are already using the scheme can continue to do so after Tax-free Childcare is implemented.  Unlike Tax-free Childcare where both parents have to be working to claim the subsidy, Childcare Vouchers only requires one parent to be working to benefit from the savings. 

Parents aren’t the only ones who will lose out when Tax-free Childcare is introduced.  With the current Childcare Voucher scheme, employers can save up to £402 per parent on their scheme each year; the more they have using Childcare Vouchers, the more they save in Employers National Insurance Contributions.  Under Tax-free Childcare, unless parents continue to use Childcare Vouchers and they increase the take up of their scheme, they could potentially lose out on significant savings for their organisation.

Parents wanting to save money on their childcare should find out if their employer offers Childcare Vouchers.  If they don’t, they can contact Busy Bees Benefits who will speak to their employer on their behalf to set up a scheme before it’s too late.

For more information about Childcare Vouchers, please contact Busy Bees Benefits on 0330 333 9100 or visit www.busybeesbenefits.com.

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