You are here: Home - Household Bills -

Parents urged to understand summer childcare support choices

Written by: Emma Lunn
Families have a choice of government supported childcare schemes – but the wrong decision could be costly.

The Low Incomes Tax Reform Group (LITRG) has warned parents to thoroughly research the way they get help with childcare costs this summer as the consequences of getting it wrong could see them out of pocket.

The Government’s latest initiative to support people with the cost of childcare, the Tax-Free Childcare (TFC) scheme, was opened to all qualifying families in February 2018.

TFC is a childcare support scheme that replaced, for new claimants, the tax relief associated with directly contracted childcare and childcare vouchers offered by employers.

For each 80p that you pay into your childcare account, the government will pay in 20p – up to a maximum of £500 (£1,000 if the child is disabled) per three-month entitlement period.

Although take up of TFC is growing, just 125,000 families used it for 151,000 children in March 2019, according to HMRC. But this compares with 47,000 families for 58,000 children in March 2018.

Victoria Todd, head of LITRG team, said: “It is welcome that the government is promoting TFC because it is clear from the current take-up statistics that many potentially eligible families are missing out on the scheme’s valuable support. However, we are concerned about the risk that parents could mistakenly make themselves worse off if they claim TFC without understanding the implications for existing support and benefits.”

Tax-free childcare versus tax credits or Universal Credit

The LITRG pointed out that parents cannot claim TFC as well as tax credits or universal credit. If they do submit a claim for TFC then their whole tax credits award (both child tax credit and working tax credit) will stop automatically. The same applies for Universal Credit.

Similarly, you cannot benefit under both TFC and childcare vouchers or directly-contracted childcare at the same time.

The tax and National Insurance relief for childcare vouchers and directly-contracted childcare was withdrawn for new applicants from 4 October 2018. So anyone giving their employer notice to leave an existing scheme to claim TFC instead will have their vouchers or directly contracted childcare stopped and will not be able to re-join.

Todd said: “Whether to claim TFC instead of other forms of childcare support is complicated. This is especially the case now that Universal Credit full service has rolled out across the UK and as a result most people can no longer make brand new claims for tax credits and other benefits that Universal Credit replaces. If you currently claim tax credits and you make a claim for TFC, your tax credits will automatically end, but if you have made the wrong decision you are unlikely to be able to reclaim tax credits and instead may have to claim Universal Credit. This could be better or worse for you depending on your circumstances.

“We urge parents to make sure they understand their situation before making a decision, and seek welfare benefits advice if they need to.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

It’s time to get your finances in shape, and moving your cash savings to a higher paying deal is a good plac...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The experts’ guide to sorting out your personal finances in 2021

From opting to ‘low spend’ months to imposing your own ‘cooling-off period’, industry experts reveal t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week