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Paying for childcare

Money

Paying for your child's care can account for a large chunk of your family income. However, there are ways you can get some extra help if the care you use is provided by a registered person or setting.

Tax credits

If you have a new baby, or you're responsible for any children under 16, you could claim Child Tax Credit. You can also qualify if you have children aged 16 to 19, as long as they're in certain types of education or training. It is worth calling HM Revenue and Customs on 0845 300 3900 or visiting www.hmrc.gov.uk to find out if you can get help.

If you are eligible, you might be able to qualify for the childcare element of Working Tax Credit. You need to be using registered or approved childcare, but if you are - the childcare element can help with up to 70 per cent of your eligible childcare costs per week, up to a set limit. The actual amount you get will depend on your income. The lower your income, the more tax credits you can get.

Only childcare provided by registered or approved childcarers is eligible for the tax credit. Registered or approved means:

  • a childminder registered with Ofsted in England or the CSSIW in Wales
  • an 8s and over childminder registered on the voluntary part of the Ofsted Childcare Register in England or the Childcare Approval Scheme in Wales
  • a nanny registered on the voluntary part of the Ofsted Childcare Register or the Childcare Approval Scheme in Wales
  • a nursery registered by Ofsted in England or CSSIW in Wales.

You cannot claim the childcare element of Working Tax Credit if the childcare you are using is provided by a relative of the child, even if that relative is registered or approved. A relative of the child means a parent, grandparent, aunt, uncle, brother or sister whether by blood, half-blood, marriage or affinity.

The exception to this is when your child is cared for by a relative who is either:

  • a registered childminder who cares for your child outside of your child's own home
  • a childcare provider, approved under a Home Child Care Providers Scheme in Wales or Northern Ireland, who cares for your child outside of your child's own home, but they must also care for at least one other child who's not related to them.

Visit HMRC for more information about tax credits, and to apply online.

Childcare vouchers

Employers may offer their staff childcare vouchers, the first proportion of which are free of tax and National Insurance contributions each week for both the employer and the employee.

Vouchers are available to parents as long as the childcarer they use is registered or approved. Childcare vouchers can be used to pay for the care of children up to the age of 15 (until 1st September following their 15th birthday) or the age of 16 if they are disabled (until 1st September following their 16th birthday).

This is a clear benefit for you as a working parent. Because you don't pay tax or National Insurance contributions on the first proportion you could save a significant amount each year. And employers could save money too – plus it helps them reduce short-term absenteeism and attract more people back after maternity leave.

The most common way of accessing vouchers is via "salary sacrifice", where you agree to convert a proportion of your salary into vouchers. No tax or National Insurance contributions are paid on the first proportion per week of a salary sacrifice.

There are childcare voucher companies who will administer the scheme on behalf of your employer, and will ensure that the payments are made correctly to your childcarer.

HM Revenue and Customs has an online calculator which help you calculate whether you would be better off using childcare vouchers.

Free education places

All 3- and 4-year-olds in England are entitled to 15 hours of free early education for 38 weeks of the year. This applies until they reach compulsory school age (the term following their 5th birthday). This is known as the free entitlement.

Contact your local early years team to find providers in your area.

2-year-old offer

Local authorities have a statutory duty to provide free early education to disadvantaged 2-year-olds. This is an extension to the existing entitlement for 3- and 4-year-olds. Contact your local authority early years team to find out more about the offer and whether you're eligible to claim. Generally speaking, families meeting the criteria also used to decide eligibility for free school meals, and looked after children, will be eligible for free care for their 2-year-old. This will be around 20 per cent of all 2-year-olds in England, although the percentage will vary from area to area.

From September 2014 new eligibility criteria will be introduced so that in total some 260,000 children in England (around 40 per cent of all 2-year-olds) will be eligible.

Universal credit

Universal Credit (UC) is a new, single payment for people who are looking for work or receive a low income. UC operates using an online system and instead of varied payments for different benefits, claimants will receive one monthly payment. The move to a single, monthly payment is to reflect the world of work, where 75 per cent of all employees receive wages monthly. This aims to smooth claimants’ transition into monthly paid work, encouraging people to take personal responsibility for their finances and to budget on a monthly basis.

UC effectively replaces the childcare element of the Working Tax Credit currently available to low-income families who work at least 16 hours a week. UC provides childcare support even if a parent works just one hour per week. For many low- to middle- income families with young children, a crucial issue is whether it pays to work after covering childcare costs. UC reforms help parents working fewer than 16 hours a week to pay for childcare.

UC is also good news for parents and carers who work irregular or unpredictable work patterns. Support for childcare costs made through the Working Tax Credit didn't work well for those with fluctuating incomes. UC goes some way to addressing this issue as it enables greater flexibility for parents and carers whose costs fluctuate during the month. For example, under UC help with childcare costs will continue for one month after a period of employment ends, meaning parents and carers won’t have to recalculate every time their circumstances change. This should mean that more people make use of formal childcare – good news for parents and for PACEY members.

To find out more about Universal Credit visit Department for Work and Pensions.

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