Yes, we know, overall that children will render your pockets empty the majority of the time, but there are occasions where they come in quite useful when it comes to tax breaks.
If you currently pay for child care, then you are entitled to some help. Childcare vouchers can be used to pay for, you guessed it, child care costs, and it can save you thousands, especially here in the South East where they can be a big proportion of your monthly outgoings. Essentially, the amount is taken off your salary before tax, so you will be better off – as £100 from your salary will be used to pay for £100 worth of child care, not, say around £70 which it would be if it came to you after tax.
If you aren’t signed up, then it’s worth investigating whether they are applicable for you, your employer will sort it all out, and you will see the amount deducted on your monthly payslip, and the amount will go straight to the child care provider.
If you are a basic rate taxpayer, you can claim £55 per week in vouchers, and for higher rate taxpayers, the limit is £28 per week, giving you a max saving of £930 and £630 respectively. Thanks very much mini-you!
BUT, be quick, as these vouchers are soon to end, as it’s being replaced in April 2018 by a new Government backed Tax-Free Child care Scheme (more about that in a minute).
There are also other schemes to help you, including tax credits and free child care hours.
So, the easiest first. For all three and four year olds, there are at least 15 free hours a week available for your child to benefit from being in a nursery, pre-school, childminder or Sure Start Centre. This starts the term after your child turns 3, and is available for 38 weeks a year (you can spread this out over the year if you want your child to be in nursery over the summer holidays, for example). Even better, the Government has recently increased this to 30 hours a week, so if your child will be 3 on 31 August 2017, then you can apply for this now.
To get it, both parents have to be working, earning at least the minimum wage, but no more than £100,000 per year (for each parent).
If you are on a low income, then there may also be help available for two year olds too, so it’s worth checking.
Then there is child care tax credit (officially called the child care element of the working tax credit). Now this is fairly complicated, and even if the below doesn’t apply to you, it’s worth finding out if your situation does mean you qualify. But essentially, if you are a single parent, or in a couple, and you are working 16+ hours a week, and earning less than £46,000 (household income) then you should definitely be in with a chance.
NOW, this is a point to note. Childcare vouchers will affect what you are entitled to in terms of child care tax credit. If you are a lower rate tax payer, you will be worse off using the vouchers because they don’t count as paying towards child care (still with us?). If not, don’t worry, the Government has a handy ‘are you better off with vouchers’ calculator here: https://www.gov.uk/childcare-vouchers-better-off-calculator
Back to the news about the Tax-Free Childcare. This is a new scheme which is replacing the Childcare vouchers. It began to be phased in from April 2017, beginning with parents of the youngest children, and it will entirely replace the vouchers in April 2018.
So how does this work? Well, essentially it’s available for everyone who works more than 16 hours a week earning up to £100,000 per year. As a couple, you both must be working. However, one bonus is that this scheme is open to those that are self-employed, whereas Childcare vouchers aren’t.
How it works is that you can get 20% of your child care costs up to £10,000 per year per child, paid for by the Government. This could work out as up to £2,000 per child. Not to be sniffed at, that’s for sure. Here’s where you can sign up – https://www.childcarechoices.gov.uk/ and you’ll need to set up an online account where you transfer the money into, and the Government will top it up.
On paper, it looks better than the vouchers, but be careful. Higher rate taxpayers could be better off using the vouchers, and remember that if you claim tax credits then you aren’t eligible for Tax-Free Childcare. Also, Tax-Free Childcare is only on offer for children under 11, but the vouchers are available for children under 15. The vouchers only have to have one parent working, with no minimum earnings, but the new scheme has to have both parents working. Again, there is no maximum earnings for vouchers, but there is for the new scheme. So it could make sense to stay put.
It is definitely worth seeking advice as to which one works for you, there are a lot of factors involved! And that’s where Nancy comes in, she is the HR point of contact and Blue Rocket Accounting and would be happy to help – just drop her an email on email@example.com
Finally, there’s good news for grandparents too!
Many grandparents often give up work to help care for their grandchildren, and that can make a difference to their state pension. But there’s help at hand. There is a Government scheme whereby they can receive NI credits. Essentially it works like this. A parent (usually the mother) who gets child benefit gets NI credits towards their state pension. But if the parent is working, then that NI credit goes to waste. However, this can be passed onto the grandparent if they are looking after the child, so they can benefit and it goes towards their state pension. The parent has to apply as well as the grandparent, as they have to give permission to sacrifice their NI credit, and the form to apply is here:
Complicated isn’t it? If you are a little confused, then we can help you through the child care maze, and work out what you are entitled to, what option benefits you the most, and how your child can actually help you get more money!