HMRC have announced further details of the new Tax Free childcare scheme which is to be introduced in 2017.
To be eligible, families will have to have all parents in work and each expecting to earn at least £115 per week and less than £100,000 a year and not be already receiving support through Tax Credits or Universal Credit.
The government will top up the account with 20% of childcare costs up to a total of £10,000 - the equivalent of up to £2,000 support per child per year.
Tax-Free Childcare will be launched from early 2017. The scheme will be rolled out gradually to families, with parents of the youngest children able to apply first. Parents will be able to apply for all their children at the same time, when their youngest child becomes eligible. All eligible parents will be able to join the scheme by the end of 2017.
The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until April 2018.
The existing system of employer supported childcare provides an income tax and national insurance contributions (NIC) relief. The maximum relief is an exemption from income tax and NIC on £55 a week. This relief is per employee so if both parents are in employment the maximum exemption is £110 per week. In the new scheme the limit is per child.
Throughout September and October 2016, letters are being sent to regulated and approved childcare providers asking them to sign up online for Tax-Free Childcare. Only childcare providers registered with a regulator (such as Ofsted) can receive Tax-Free Childcare payments.
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