New tax-free childcare scheme – Update – 2016

A new tax-free childcare scheme, previously scheduled to be introduced in autumn 2015, is due to be launched in early 2017. The scheme will be available initially to parents of disabled and very young children, with all eligible parents able to join the scheme by the end of 2017. The scheme will provide parents with savings of up to £2,000 per child, per year. There is no limit on the number of children that can be claimed for.

How will the scheme work?

HM Revenue & Customs (HMRC) will deliver tax-free childcare in partnership with National Savings and Investments (NS&I). The government will be a single point of contact for parents to register for the scheme, make payments into the parents’ account, and arrange payments to their childcare provider(s). Savings will be held in an online account and 20% will be added by the government to contributions made by the account holder/s. For a parent claiming the full £10,000, he or she will pay £8,000, with the government contributing £2,000.

Who will benefit from tax-free childcare?

  • Single, employed and self-employed parents (not including those who earn over £100,000 per annum)
  • Couple, both employed
  • Couple, one employed and one self-employed
  • Couple, both self-employed

Tax-free childcare will not be available to couples in which one parent is unemployed or to single parents who earn over £100,000 per annum or are unemployed.

Those signed up to an existing childcare voucher scheme will have the option to continue purchasing vouchers or move to the new scheme. This means they will be able to decide which option is more advantageous to their circumstances.

Employers will not be able to set up a new childcare voucher scheme after April 2018; however if there is an existing scheme in place, employees will be able to continue ordering childcare vouchers for as long as their employer offers it.

For more information on the new tax-free childcare scheme or any payroll matter please contact Neil Cameron, Payroll Manager at neil.cameron@chiene.co.uk or on 0131 558 5800.