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Tax free childcare: Here's what you need to know

Tax free childcare is available to around 2 million households to help parents with the cost of childcare, enabling parents to go out to work if they want to and also provide increased security to their families. Here are a few things you should know about tax free childcare:

  • You will be able to open an online account which allows you to pay into it to cover the cost of childcare with a registered provider; this will be done through the government website, GOV.UK

  • For every 80p you or someone else pays in, the government will top up an extra 20p which is equivalent to the tax most people pay - 20% - which is where the scheme gets its name, tax-free. The government will top up the account with 20% of childcare costs up to a total of £10,000 which is the equivalent of up to £2,000 support per child, per year.

  • The scheme will be available for children under 12 and will also be available for children with disabilities under the age of 17; this is because their childcare costs can stay high throughout the teenage years.

  • In order to qualify for this scheme, parents will have to be in work and each earning at least £120 a week and not more than £100,000 each per year.

  • The tax free childcare scheme doesn't rely on employers offering it, unlike the current scheme Employer-Supported childcare. This means any eligible working family can use tax free childcare.

  • Unlike the current Employer-Supported Childcare scheme, parents who are self-employed will be able to get support with childcare costs in the tax free scheme. To support parents who are newly self-employed, the government is introducing a start-up period and during this, self-employed parents won't have to earn the minimum income level.

  • This scheme will also be available for parents who are on paid sick leave and unpaid statutory maternity, paternity and adoption leave.

  • If you currently receive Employer-Supported Childcare and don't want to switch to the tax free childcare scheme, this is fine as the Employer-Supported Childcare scheme will continue to run. The current scheme will remain open to new entrants until April 2018 and parents already registered will be able to continue using it for as long as their employer offers it.

  • For flexibility you don't have to pay in a set amount of money to the childcare account each month. Some months you can pay in more and others you can pay in less meaning you can build up a balance in your account to use at times where you may need more childcare than usual. It's also not just parents who can pay money into the childcare account - if grandparents, other family members or employers want to pay in then they can.

  • This process will be as simple as possible for parents; you will only have to re-confirm your circumstances every 3 months through a simple online process. There is also a simple log-in service which allows parents to view accounts for all their children at once.

  • If your circumstances change or you no longer want to pay into the account you will be able to withdraw the money you have already built up in it. However, if you do this then the government will withdraw its corresponding contribution.

If you want believe you are eligible for tax free childcare and want to apply, you can click here to do so.

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