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Childcare for the Self-Employed

With so many different tax classifications now existing, there have always been small groups that have missed out from tax breaks. One such group has been the self-employed, who in the past have not benefited as much in terms of childcare tax breaks as other groups.

To eliminate this and make such help readily available to more people, the Tax-Free Childcare scheme exists. Wanting to provide working people and families with as much financial assistance as possible, the government has introduced a number of schemes and tax breaks related to costs associated with childcare. To help you better understand what is available and what you are required to do to get it, we have created the following details regarding the Tax-Free Childcare scheme:

Tax-free childcare scheme

The government’s Tax-Free Childcare scheme was created to provide working families in the UK who meet set criteria with financial assistance towards childcare costs they may have. This scheme is now also open to the many of millions of people in the UK who are classed as being Self-Employed. This financial support can total a maximum of £2,000 a year for each child as long as various criteria set by the government are met. Easy to set up online, members can get money back from the government when they set some of their own money aside for childcare. Whilst you can use your money for other purposes, any contribution made by the government can only be used for childcare reasons, and again as long as they meet a set of strict criteria.

Am I eligible for tax-free childcare?

The good news is that many people are eligible for the Tax-Free Childcare scheme – even if you already receive the current 30 hours of free childcare currently provided. The scheme is open to all children aged 11 or under, and on condition that they predominantly live with you. This age limit is raised to 17-years for children registered as disabled.

All working parents living in the UK earning the National Minimum Wage or Living Wage for at least 16 hours a week (currently this roughly stands at £125.58 a week if you are aged over 25.

If you are a new business owner, you will be provided with a ‘start-up’ grace period of 12-months. During this time, you will not be required to earn the minimum income level – meaning you can still apply for the Tax-Free Childcare scheme.

How does the scheme work?

For every payment of 80p, the government adds an additional 20p up till a total of £2,000 per child per tax year. For children registered as disabled, this rises to £4,000. These totals are not available in one go – rather the government has set its quarterly contribution limit to £500 per child. To enter the scheme, you must create a Government Gateway account with HMRC – into which they and other family members can pay into. This money can then be withdrawn and used for childcare costs whenever required. One of the conditions of this scheme is that the childcare provider you use must be registered for the scheme with the government – many providers currently are registered, with the number continuing to increase.

It should be noted that any money you put into the scheme can of course be withdrawn for other purposes at any time. However, if you do this, any contribution made by the government will of course be removed. Furthermore, people already claiming Universal Credit, Working Tax Credit, Child Tax Credit or receiving childcare vouchers are ineligible for the Tax-Free Childcare scheme. If you register for the scheme, you must reconfirm your eligibility every 3-months (simply ticking a box) and for which you will be given prior notice when required.

How to apply for Tax-Free Childcare

If you wish to apply for this Tax-Free Childcare scheme, you can do so on the government’s website. Guiding you through the simple process, you will be allowed to setup an online account. Operating the same as a normal bank account, you will then be able to pay whatever you wish into the account depending on your own specific needs – for example, you may wish to pay more in to cover school summer holidays. Regarding criteria to be approved, there are a variety of factors that can affect the decision. In general, if you earn more than £100,000 annually, you will not be eligible for the scheme. Likewise, families with a combined income of less than £46,000 will have a strong chance of being approved for the scheme.

Childcare vouchers

If you currently receive Childcare Vouchers, you cannot apply for the Tax-Free Childcare scheme. This also applies if you are on Universal Credit or are receiving tax credits. The government closed the Childcare voucher scheme to new applicants in October of last year. Therefore, you will no longer be able to join this scheme. If you are already on the scheme, you will continue to benefit from the vouchers as long as your child/children remain eligible and you continue working with the same employer.

Good luck!

As you can see, there are various factors that you must consider surrounding the Tax-Free Childcare scheme. However, if you are eligible, it can be a great way of further reducing childcare costs. Enabling you to put in what you can when you want, it can provide useful help when required – particularly around the school holidays. As with all financial matters, a qualified accountant will be well placed to advise you on the best course of action to take. We hope the above information has been useful and given you a clearer idea as to what Tax-Free Childcare is and how you can benefit from it.

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