A recent OECD report reported that the cost of childcare in the UK ranks as one of the highest in the developed world. Similar studies have examined how the pressures of dealing with childcare have reached the stage where it could affect the demographics of the UK. Families in certain parts of the country, who are knowledgeable of the cost of childcare, say it is influencing their decision on whether to grow their family unit.
In addition, a report by insurance company LV= suggests that the total cost of raising a child born in 2016 to the age of 21 in the UK could cost an estimated £230,000. This was higher than the UK average price for a semi-detached house at the time of the report.
We will revisit the cost of childcare in a series of articles.
What is clear from the above is that any incentives or benefits offered by the government need to be seized with both hands.
In this piece, we discuss an important upcoming deadline for parents to make a choice as the Childcare Vouchers scheme migrates into the Tax-Free Childcare scheme.
If you are still eligible for the former and it better suits your family situation there is still time to set this up – but act fast. The deadline for new entrants to the Childcare Voucher scheme is 4th October 2018. After this date, the only option will be the Tax-Free Childcare scheme.
Due to predictable admin issues, the government voted in March to delay the migration cut-off time to October but as the year flies by this is now upon on.
Here is a basic breakdown of the two schemes.
Key facts for Childcare Vouchers:
- Limited to employees whose firm offers this benefit.
- No minimum earnings. One parent needs to work
- Child’s max age 15 (16 if registered disabled) – consider this for tutor fees.
- No income limit.
- Possibly better option for those with fewer children and lower childcare budget.
- Better for couples where one parent does not work as this renders them ineligible for Tax-Free Childcare.
- Tax thresholds: Basic rate taxpayers with annual childcare costs of less than £9,336 are better with childcare vouchers. Higher rate taxpayers with annual childcare costs of less than £6,252 are better with childcare vouchers.
- Anyone earning over £100,000 per annum (or in a couple where one member earns £100k+) is ineligible for Tax-Free childcare which leaves Childcare vouchers are the only option left.
Key facts for Tax-Free Vouchers:
- Anyone can apply – self-employed and employed.
- £120 per week minimum earnings. If a couple, both parents must work.
- Child's maximum age is 11 (16 if registered disabled).
- Maximum income ceiling of £100,000 per parent.
- 20% off childcare costs.
- Possibly better option for families with more children and higher childcare costs.
- Only option for self-employed people.
Based on the above, if childcare vouchers are the clear winner for you situation, then the time to act is now.
For more information, please visit the government website here or the invaluable Money Advice Service wesite.
Provided for informational purposes only. Not designed as advice. Speak to your IFA or tax advisor for advice tailored to your individual circumstances.
Information correct at the time of publishing.