According to a survey this week the cost of childcare has risen by a staggering 19% in the last year. With some cash-saving tips, Martin Lewis is here to deliver his essential guide to childcare, tackling everything from tax credits to childcare vouchers and after-school clubs.
What counts as childcare?
Don't assume childcare helps only for babies in swaddling cloth – the definition usually stretches up to age 15 (in some rare cases longer). If your kids will be off school and you need to shell out to get them looked after, funds may be available.
The two main options for help both apply to after school and summer clubs, nurseries, playgroups, nanny, childminder or au pairs provided they are registered and regulated.
You can find out from your local authority’s children’s services department or search for your nearest Family Information Service on the Daycare Trust , which should be able to tell you about a good chunk of provision available in your area. If not just ask the childcare providers you’re talking to.
Help 1: Childcare tax credits
Ignore the name – a tax credit is simply a payment made from the state into your bank or building society account each week, it’s completely misnamed and has little to do with the tax you pay.
The actual rules of who is entitled to it are complex, but I’ve a rule of thumb which should help. If you:
Work over 16 hours a week (if a couple you must both work over 16 hours a week) and
Have combined family income of under £41,000 a year
Then it is definitely worth checking out whether you are eligible for tax credits for childcare (technically part of the working tax credit). Do note I’m saying it's definitely worth checking out, not that you’ll definitely get it. To find out just call the hotline on 0345 300 3900.
And we’re talking serious cash here. You may be entitled to up to 70% back, up to a limit of £120 a week for one child, and up to £210 for two or more. A typical payment is £3,000 a year.
Help 2: Am I entitled to childcare vouchers?
If you aren’t entitled to tax credits the next thing to look at is childcare vouchers. Unfortunately these can only be offered via employers which is frustrating for the self-employed.
It can be extremely beneficial. The usual way this works is via salary sacrifice. Here you give up say £1,000 worth of salary for £1,000 worth of childcare vouchers. Yet of course after tax and national insurance for most people, £1,000 of salary is only worth £700 in your pay packet, so you are £300 per £1000 better off.
How many can I get?
Each parent can do this. Basic taxpayers can get £55/week vouchers (max annual gain £930) higher rate £28/week (£63), top taxpayers £25/week (£590). This is regardless of how many children you have.
What if your employer doesn’t offer them?
It’s worth having a chat with them (especially if there are other employees in a similar position), employers can gain from offering them too due to lower national insurance costs.
Can these be given to grandparents?
The only way is if they become a registered childminder and looking after at least one other child, and not in the child's home, so it's difficult.
Check out free/subsidised summer and afterschool clubs
If you’ve got older children it's worth thinking about Easter and summer holidays now, as holiday time can be extremely expensive. In some areas both schools and councils offer free or subsidised childcare during holidays and afterschool clubs – check now as they can get booked up very quickly.
Importantly, if you have to pay for these then this usually counts for childcare tax credits and can be paid for in vouchers, so may not be as costly as it first seems.
For those with children aged three or four there are free early learning classes (includes time spent at a school-attached nursery) for at least 38 weeks a year, with an entitlement of 15 hours/wk (to be spread over at least three days). Families with a low income may also get free classes for two year olds.
What changes are coming for childcare laws
The government has a plan to replace childcare vouchers (it won't change tax-credits) with a ta-free childcare scheme to come in after the next general election. This wouldn’t be operated through employers which would be a gain for some, but both parents would need to be working to be eligible, so some families would miss out and it would only be for children up to aged 5. Quite simply if you paid £80 for childcare the government would add £20, up to a maximum of £1,200 a year per child.