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£2,000 Tax-Free Childcare Scheme – what is it?

Published 3 April 2017 by

The Chancellor Philip Hammond announced in his Budget 2017 speech that the Government's Tax-Free Childcare scheme will roll out in April. The new scheme will see the Government contribute 20p for every 80p that a parent spends on childcare costs.

You could get up to £2,000 a year towards the cost of childcare for each child under 12. To make sure you know whether you're eligible for this scheme, we're taking you through the details.

How does the scheme work?

Tax-Free Childcare is a Government-backed scheme to help parents with the cost of childcare – it will eventually replace the Childcare Vouchers scheme.

The Government will introduce Tax-Free Childcare on 28 April 2017. It will then gradually roll out over the year. Eligible families will receive an extra 20% towards childcare costs – it's called 'tax-free' as you get the basic-rate tax back on what you pay.

You'll be able to use the scheme to pay for childcare up to £10,000 per child each year. That means you could get an extra £2,000 per child (or up to £4,000 if your child has a disability) each year.

For example, if your childcare bill was £500 a month, you'd pay £400 each month and the Government would pay the remaining £100 a month. Your annual costs would fall from £6,000 to £4,800.

There's no more financial support available if your childcare bills goes over the Government maximum.

Am I eligible?

To qualify, you'll need to be a working parent that earns at least £115 a week. Your annual salary cannot be more than £100,000 per year.

Tax-Free Childcare will be open to people who are self-employed. However, both you and your partner will need to work to qualify. For example, you won't be eligible for the scheme if you're self-employed and your partner doesn't work.

You will have to wait until you return to work to apply for the scheme, if you're on paid or unpaid statutory maternity, paternity or adoption leave. The scheme is available to parents of children under 12, or to disabled children under 17.

Can I register now?

The Government has launched a new website called Childcare Choices which allows you to pre-register for the scheme. You can also sign up for email alerts that will tell you when you can apply.

Parents of the youngest children (those under the age of 2) will benefit from the scheme first. However, the scheme will roll out to all eligible parents by the end of this year.

You'll need to set up an online childcare account to be able to use the scheme and can apply for all of your children at the same time. You'll be able to transfer money in from your bank just like any other savings account. Grandparents or family friends can also put cash in.

There is some flexibility to spread out the cost of childcare if you wish to. For example, you could pay in more some months to help cover the cost of extra childcare during busy periods like school holidays.

From April 2018, you won't be able to join the Childcare Vouchers scheme as a new entrant. But if you're already a member, you will still be able to use your childcare vouchers for as long as your employer runs the scheme. Find out why you shouldn't let your childcare vouchers expire in our blog.

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