HMRC details how Tax-Free Childcare scheme will work

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More details of how the Tax-Free Childcare scheme will work in practice have been revealed to Nursery World by HMRC.

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The Tax-Free Childcare scheme will be offered to working parents from April, starting with those with the youngest children

More details of how the Tax-Free Childcare scheme will work in practice have been revealed to Nursery World by HMRC.

It follows the announcement in the Budget that the scheme will start in April for parents of the youngest children, and be rolled out to all eligible parents by the end of the year.

Parents of children up to the age of 12 will be able to claim up to £2,000 per child per year, or £4,000 if the child is disabled, towards childcare costs.

Parents will only be able to use Tax-Free Childcare if their child’s setting has registered. Letters were sent out to more than 100,000 registered UK childcare providers last September and October asking them to sign up.

An HMRC spokesperson said, ‘More than 20,000 childcare providers have already signed up and we expect this number to significantly increase as the public roll-out of Tax-Free Childcare approaches. We are sending out reminders to all registered childcare providers who are yet to sign up.’

A trial of the digital account system for Tax-Free Childcare, which will be operated by National Savings & Investments, is currently under way, with around 1,500 parents taking part.

SETTING UP AN ACCOUNT

HMRC told Nursery World that before parents can set up a digital account, they will be asked to provide relevant details to prove they are eligible; for example confirming details of their child, and their employment status.

To qualify, parents will have to be in work, and each earning at least £115 a week and not more than £100,000 each per year.

The Government has estimated that around two million households will be eligible for the scheme that is replacing childcare vouchers, which will be phased out by April 2018.

According to HMRC, the vast majority of applications will be processed in ‘real time’. However, there may be some exceptions if additional information is needed.

Parents will have an account for each eligible child, but access them all via one log-in.

PAYMENT

Parents will be able to pay money electronically into their childcare accounts as and when they like, which can be used to pay for registered childcare. Money can also be taken out of the account.

They can pay in as much money as they want and build up a balance to use at time when they need more childcare than usual; for example, over the summer holidays.

Grandparents, other family members and employers will also be able to pay into the account.

All ‘qualifying’ payments will receive a Government top-up of 20p for every 80p paid in, up to a maximum of £500 per quarter (ie, £2,000 a year) per child. The annual cap is £4,000 for a disabled child.

Within the account, parents will be able to select their childcare providers, link them to their child and arrange payments.

Each child will have a unique reference, which will allow the provider to link payments received from the account to the child concerned.

HMRC will be launching a publicity campaign to explain Tax-Free Childcare to parents.

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