Paying for Childcare
Paying for Childcare what can you realistically afford? The cost of childcare varies considerably depending on the type you choose, availability in your area, your geographical location and the age of your child. It may seem expensive, and childcare costs can account for a large part of the family budget, but where the safety and well-being of your child is concerned, it is worth choosing the best you can afford.
You will need to work out the cost of your preferred choice of care and how much you can afford each month, taking into account what financial help you are entitled to.
Nine out of 10 families are eligible for some financial assistance through the new Child Tax Credit and Working Tax Credit. The amount you receive will depend on your circumstances.
Families with children can claim Child Tax Credit if you have a child under one. The amount you get depends on various things, including your annual income and is paid directly into the bank of the main carer.
The other tax credit you may be entitled to, if either you or your partner is working, is called Working Tax Credit. It includes a childcare element to help families who are working and spending money on childcare.
The following link will help you calculate what you can claim for: www.childcarechoices.gov.uk
Childcare Vouchers is a scheme some employers offer to help working parents save on registered childcare costs. Childcare vouchers are not means tested and are available to all working parents whose companies operate childcare voucher schemes. The vouchers can be used to pay for all types of registered childcare including registered childminders, day nurseries, crèches, playgroups, out of school hours clubs, holiday play schemes and home childcarers approved under the new Home Childcarer Approval Scheme.
Your entitlement to tax credits, however, is likely to be affected. This is because you can only claim help through the childcare element of Working Tax Credit on childcare costs that you meet yourself. If your employer meets any of your childcare costs, even if your pay has reduced in return (a salary sacrifice) these costs do not count.
Save Tax and N.I.
If your employer operates a childcare voucher scheme, you can save National Insurance and Income Tax. By registering for your employer's scheme, up to £55 a week can be deducted from your salary and used to provide childcare vouchers for the same amount. This amount, which is deducted from your gross salary, is then exempt from National Insurance and Income Tax.
We accept vouchers from many providers, these include:
- Computer Voucher Scheme (including Leapfrog)
- You At Work
- Say Care Pass
- British Transport
- KU Vouchers
- Early Years
If your employer uses a different provider, our nursery manager make the necessary arrangements.
Redeeming your vouchers
If you receive paper vouchers, they can be handed in at the nursery to be redeemed each month against your fees, or you can redeem the voucher yourself.
Alternatively, many providers now offer an automatic redemption process. Once you have made this arrangement, the redemption takes place at the same time each month, without any further action needed on your part.
If you have more than one child at the nursery, you can choose whether the voucher payment is split between your accounts, or redeemed against just one account.
Child Tax Credit & Working Tax Credit
Childcare - it's not so taxing
Did you know that in April 2006 the government increased the weekly exempt amount for childcare vouchers (and other directly contracted childcare) by 10% from £50 to £55 per week with effect from 6 April 2006. Which means working parents can now claim up to £55.00 per week in childcare vouchers tax free!
What are tax credits?
Tax Credits offer extra financial support to help with your everyday costs - they are flexible and change whenever your life changes. There are two types of tax credits - Child Tax Credit and Working Tax Credit, both of which you may be eligible for. Child Tax Credit is a payment created to support families, or individuals with at least one child or young person who they are responsible for. Working Tax Credit is additional financial support for workers on a low income and can be claimed even if you do not have any children.
Child Tax Credit
Nine out of ten families with children qualify. Families with children can claim Child Tax Credit if their income is no more than £58,175 a year (up to £66,350 if you have a child under one). How much you get depends on things like:
- How many children or qualifying young people live with you.
- You may get more if you care for a child under one.
- If any child or young person is disabled
- Your income
- You don't have to be a parent either - anyone who's mainly responsible for a child can claim.
- If you share responsibility with someone else whom you live with as if you were married or civil partners, you must claim together whether you're married or civil partners or not. If you share responsibility with someone else who doesn't live with you, and the children or young people also live with them for part of the time, you need to decide between you who has main responsibility. Only the family member with main responsibility can claim Child Tax Credit.
The payment is made up of two elements:
A family element paid to any family with at least one child and worth up to £545 (2008-2009 tax year).
A child element paid for each child in the family and worth up to £2,085 (2008-2009 tax year)
Child Tax Credit is paid directly into the bank of the main carer.
Working Tax Credit
If you're in work but on low pay, you can apply for Working Tax Credit to top up your earnings. It includes a childcare element to help families who are working and spending money on childcare. You can claim this whether you're employed or self-employed and you may get extra if:
- You are a parent or responsible for one or more children or young people
- You pay for childcare
- You are disabled
- You are aged 50 or over
The childcare element of Working Tax Credit is aimed specifically at helping working parents with the cost of registered and approved childcare. This can pay up to 80% of childcare costs up to a limit of £175 per week if you are paying for one child and up to £300 per week for two or more children (meaning the most you can receive for the childcare element is £122.50 for one child or £210 for two or more children).
How to claim
You can order a claim pack over the 'phone by calling the tax credits helpline on 0845 300 3900. Lines are open every day (except Christmas Day, Boxing Day, New Year's Day and Easter Sunday) from 8am to 8pm. If you're part of a couple or civil partnership and you both work at least 16 or 30 hours a week, you can decide who'll get the Working Tax Credit payments.
For more information on eligibility and how to claim tax credits, you can visit www.taxcredits.inlandrevenue.gov.uk
What employers can do
Provide up to £55.00 per week (£243.00 per month*) in childcare vouchers to each employee free of National Insurance (NI) contributions and income tax credited through their payslip.
Directly contract a nursery or after-school club on behalf of their staff and pay up to £55.00 each week to each parent towards childcare.
Offer a workplace nursery or crèche, managed by the employer or a contracted nursery, contributing up to £55.00 a week for each parent, also free from tax and National Insurance.
This has been calculated on the basis of 53 weeks x £55 divided by 12 and rounded up to the nearest whole pound.
The new revised benefit of £55.00 per week per parent is in addition to existing tax credits. However it is only payable through your employer's payroll and can only be paid in vouchers into a workplace-provided nursery, or paid by the employer direct to the nursery.
The provisions do not cover purchase of childcare vouchers directly by employees.
Vouchers must be used with a registered or approved childcare provider.
The employer must be responsible for the purchasing of childcare or you will not qualify for the tax reductions.
If two parents of a child are working, they are both entitled to the £55.00 provision.
Similarly, same-sex parents are both entitled to benefits if both of them work.
How the changes to taxation could affect you
Your employer may run a salary sacrifice scheme, approved by the Inland Revenue, where you as an employee formally agree to a reduction in your salary and instead receive that amount in childcare vouchers. As long as the value of childcare provided by your employer does not exceed £55.00 per week you do not need to declare anything on your PI ID (expenses and benefits) form.
Salary sacrifice schemes must not allow basic pay to fall below the minimum wage level set by the Government.
If the scheme shows the sacrifice through the payroll as a negative allowance to reflect the reduction in pay, the first £55.00 per week should reduce tax and National Insurance contributions.
Salary sacrifice schemes will only be approved if there has been a true cut in pay to receive the benefit.
Payslips need to show the reduction in the salary for the benefit received. A notional salary of the original pre-reduction salary can be shown on the payslip for administrative purposes and for the employer to calculate other benefits.
For any further information please call the Tax Credit helpline on 0845 300 3900 or visit www.taxcredits.inlandrevenue.gov.uk