Government consults on tax-free childcare

The government has launched a consultation into its new tax-free childcare scheme.

The consultation sets out new detail on eligibility for the scheme, for example, stating that parents who are not working because they are on parental leave or because they are carers will be able to claim. The consultation closes on 14 October.

The document also confirms that:

  • The new childcare scheme will cover 20%, equivalent to the basic rate of tax, of working families’ childcare costs up to a limit of £6,000 per year per child.
  • In the first year of the scheme, starting in autumn 2015, children born in or after September 2010 will be eligible (those aged under five and younger five year-olds). This will increase to six-year-olds in the second year, and so on until all children under 12 are eligible. Once the scheme has been fully phased in, eligibility will end in the September following the child’s 11th birthday.
  • To be eligible for the scheme, families must have all parents in work, with each earning less than £150,000 per year. They must also not already receive support through tax credits (or Universal Credit in the future) or the current employer-supported childcare scheme.
  • The scheme will be run through online voucher accounts.

The consultation seeks views from parents, childcare providers, employers, and current and potential future voucher providers on a number of detailed proposals for the design of the new scheme.

Its proposals include:

  • While the tax-free childcare scheme is being introduced to support families where all parents are working, there will be some exceptions to this. Parents on paid maternity, paternity and adoption leave will be eligible to continue receiving tax-free childcare for any children they already have. Couples in which one parent works and the other is in receipt of contributory employment and support allowance or carers’ allowance will also be eligible for the scheme.
  • The eligibility of children will be aligned to the school year so that children in the same year at school will be treated consistently under the scheme and parents can receive support with their costs for the whole school year. All children born after August 2010 will be eligible.
  • The government intends to deliver tax-free childcare through online voucher accounts run by private sector voucher providers. The government wants parents to have a choice of voucher providers and for them to be able to switch between these with minimal fuss and cost.
  • The government is also consulting on the detail of the £200 million additional childcare support that will be available from April 2016 for working families who receive Universal Credit.

The new scheme will be phased in from autumn 2015, funded partly by the phasing out of the current employer-supported childcare scheme.

Employer-supported childcare will continue for current members, if they want to stay in it and will be open to new joiners until tax-free childcare comes in.

Chancellor George Osborne said: “This government is on the side of people who want to work hard and get on in life. Tax-free childcare will help working parents by giving them more choice and better access to the quality, affordable childcare they need.

“We want to make the new scheme work in the way that is best for parents, so today we are asking for their views, and I’d like as many parents as possible to tell us what they think.”

Danny Alexander, chief secretary to the Treasury, added: “The government wants to build a stronger economy and a fairer society and key to that is getting more people into work. We won’t let childcare costs stand in the way of parents’ ability to work if they want to.

“Tax-free childcare will put money in families’ pockets, saving the typical two-child family up to £2,400 per year on their childcare costs and allowing parents more choice to work the hours they want.”

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Paul Bartlett, a member of the Childcare Voucher Providers Association and head of reward at provider Grass Roots, said: “The role of the employer in the current childcare voucher scheme has been a fundamental reason for its success.

“Ensuring there is a link between the new scheme and employers will help build on this success, and guarantee employers can still play an important role in helping their staff with childcare costs.”