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Tax-Free Childcare: for the self-employed and your employees

Monthly costs are inevitable, and as a business owner you’ll have your fair share. Just like you your team will too: mortgages, rent, gym memberships… and if you or your team have children you’ll likely have those costs too. 

Until recently being self-employed has ruled you out or a lot of the schemes, but that’s now changed! Just like your team, you could be eligible for the government childcare schemes: from 30 hours free per month, to 20% top up on whatever you pay a childcare provider. 

So whether you’re after the details for yourself, or to advise the team… here’s the low down of the basics of the two schemes!

What is the Tax-Free Childcare scheme? 

1. Government 20% contribution to costs: 

HMRC will support you by contributing towards your childcare costs: up to £2,000 per child per year! When you set up an account, and pay in 80p, the government will top that up by a further 20p. You then pay the childcare provider from that account and end up saying 20% off the full bill. 

It has to be used towards your costs from approved childcare providers including nurseries, childminders (if registered), and after-school clubs. It also includes holiday childcare like summer camps. So if your peak time is summer and you’re scrambling around flitting the kids here and there to save costs, then it’s worth applying for this help. 

Whatever childcare provider you use, they’ll need to be registered with a regulator like Ofsted and signed up to the scheme. 

You can also withdraw money you’ve built up (government contributions will go back to the government). To make sure the details are correct, you need to re-enroll every 3 months (very simple – you just login to your account and tick that your circumstances haven’t changed.) 

Who is eligible? 

Parents: 

  • To qualify you have to be in work, and each earning around £115 a week and not more than £100,000 each per year. 
  • It’s available to parents who are self-employed. To support newly self-employed parents, the government introduced a ‘start-up’ period. During this time you won’t have to earn the minimum income level. If you’ve been set up for more than 12 months but don’t expect to make enough profit in the next 3 months, you can use an average based on how much you expect to make over the current tax year. 
  • If you or your partner have an ‘adjusted net income’ over £100,000 in the current tax year you won’t be eligible. This includes any bonuses you expect to get. Your adjusted net income is your total taxable income before any personal allowances. 
  • Any working family can use Tax-Free Childcare, provided you meet the eligibility requirements: it doesn’t depend on employers offering it! 
  • The scheme will also be available if you are on paid sick leave, paid or unpaid statutory maternity, paternity or adoption leave. 
  • NOTE: the scheme can’t be used if you’re claiming Universal Credit, Working Tax Credit, Child Tax Credit or using childcare vouchers. 
  • You need to earn at least the national minimum wage or living wage for 16 hours a week on average. 

Children: 

  • The children need to be aged 11 years or under and usually live with you. They stop being eligible on 1st September after their 11th birthday.  
  • It will also be available for children with disabilities up to the age of 17, as their childcare costs can stay high throughout their teenage years. 

Plus more great news: this is available on top of the 30 hours free childcare that I’ll share more about below. 

2. Claim 30 hours free childcare per month for age 3 – 4 

So, now onto the second part of the scheme. The school term after a child hits 3, you could be eligible to claim up to 30 hours of free childcare. It’s available where both parents work, or the sole parent in a lone parent family. 

What’s the eligibility criteria? 

  • Each parent (or sole parent) has a weekly minimum income equivalent to at least 16 hours at national minimum wage (£107.20) per week)/national living wage (£115.20) and neither parent (or sole parent) has an income of more than £100k per year.
  • Both parents are employed but one or both parents is temporarily away from the workplace on parental, adoption, maternity or paternity leave, or statutory sick pay. 
  • One parent is employed and one parent has substantial caring responsibilities based on specific benefits received for caring. 
  • One parent is employed and one parent is disabled or incapacitated based on receipt of specific benefits. 

How to apply? 

The same way for both, you need to sign up via the Child Care Choices website.  

The Tax-Free Childcare account can only be in one parent’s name, so you’ll need to decide who is going to open the account. 

Once the account is open, you can pay into it by direct debit, standing order or bank transfer. It operates like an online savings account – you contribute depending on how much childcare you’ll need. As highlighted above, the government top up is limited to £2,000 each year and £500 in a three-month period. 

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