Martin Lewis: Important news for those paying for childcare
Last week it was revealed paid childcare costs are up 7%, far ahead of inflation. However there’s £1,000s of free cash available to help those who pay for childcare through two schemes. Though one, Childcare Vouchers, closes to new members on 5 April. And our Money Saving Expert Martin Lewis is urgently calling for parents to decide now if they should sign up, or risk losing out.
The choice between the two is complex, for full help and detail see Martin’s ‘childcare costs guide’.
What are these two childcare schemes?
Both are available across the UK and designed to give help to those who pay for childcare. Yet you CAN’T have both.
- Tax-free childcare:This is a newer scheme launched in April 2017. You open up an online, state run, Childcare Choices account and for every 80p you put into it the state adds 20p. You can put in up to £8,000 PER CHILD per year so up to £2,000 will be added and it can be used for all Ofsted (or equivalent) nurseries, childminders and after-school clubs (double that for a disabled child).
It should be noted there have been many glitches and problems for people signing up to this.
- Childcare vouchers: Here you normally do what’s called a salary sacrifice. That’s where you agree to have your salary reduced, in exchange for your employer giving you the same amount back in childcare vouchers – which can be again used in all Ofsted childcare.
Yet the key is there’s no tax or national insurance on the vouchers. So let’s say you give up £1,000 of salary, after tax and NI, for a basic rate taxpayer, that's only worth £700ish in your pocket. In return, you get £1,000 to pay for childcare, so you're £300 better off.
What’s the deadline with childcare vouchers?
If you’re not a member of it by 5 April, you won’t be allowed to join afterwards. And to be a member you need to have actually made the salary sacrifice and received vouchers. Yet with some payrolls, that can take up to a month to do, so go urgently if this is right for you (which I’ll explain below) and speak to your payroll department.
To sign up you have to be a parent (you can’t do it if pregnant with first child).
Are both schemes open to everyone?
No, the eligibility criteria are very different – many will only qualify for one of the schemes – which is why working out which one asap is crucial.
Anyone can get childcare vouchers providing your employer offers them (which they don’t have to). Yet that cuts out the self-employed.
Tax-free childcare is available to the self-employed, yet you have to earn the equivalent of 16 hours a week at the national living wage (which is £120/week), and not over £100,000. And if you’re a couple BOTH of you need to do this. So if there’s one stay at home parent you can’t get this scheme (yet if your employer offers childcare vouchers you can get that).
If I qualify for both which is better?
If you are eligible for both schemes, then there are three key factors to look at…
So parents with more children and higher childcare costs, are better off with tax-free childcare as there’s far more free cash available. Those with small childcare costs should sign up to vouchers as the discount is bigger.
What about the 30 hours of free childcare?
Parents of 3 and 4 year olds in England who qualify for tax-free childcare are also entitled to 30 hours free childcare a week. Though the role out has been tricky. For parents in England who don’t qualify you’re entitled to 15 hours free childcare.
As for the rest of the UK, in Scotland all 3-4 year-olds are entitled to 16 hours of free childcare a week. In Wales, they get 10 hours a week free childcare (some areas are being trialled at 30 hours), and in Northern Ireland 3-4 year-olds get 12.5 hours a week.