Tax-Free Childcare was introduced on 21 April 2017 and will be gradually rolled out over the remainder of the year. Parents who have children under the age of 4 on the 31st August 2017, and parents of disabled children under the age of 17 are able to join the scheme first. By the end of 2017, all eligible parents will be able to enter the scheme. Tax free childcare is available until the child reaches the age of 12 and scheme is available for each eligible child.
Under the scheme, parents are required to open a designated online account, which can be done through the government website. Through this account, for every 80p invested, the government will top up an extra 20p, up to maximum net contributions of £8,000 (£10,000 gross), giving a maximum bonus of £2,000 per child per year. Parents can pay money into this account as and when they like, and it is also possible for grandparents, employers etc to pay in, if they wish. If circumstances change and there is no longer a need for the account, it is possible to withdraw money invested in the account. The government will also withdraw their contribution on the corresponding amount withdrawn.
To qualify for Tax-Free Childcare, certain conditions must be met, being that both parents must be in work, and earning at least £120 per week but neither parent should be earning over £100,000 per year. In addition, neither parent should be in receipt of tax credits, universal credit or childcare vouchers. The money invested must be used for qualifying childcare, being child minders, nurseries and after-school clubs, among others.
The scheme is also available to parents who are self employed, provided they meet the qualifying requirements, however there are certain exceptions from the qualifying conditions to support newly self employed parents. The scheme is also available to parents on sick leave, maternity, paternity and adoption leave.
Tax-Free Childcare does not rely on an employer offering the scheme, meaning any working family who meet the qualifying conditions can join the scheme. The existing scheme of Employer-Supported Childcare will continue to run for those parents already within the scheme, and will remain open until April 2018 for new entrants. Parents already registered with this scheme before April 2018 will be able to continue using the scheme, as long as the employer continues to offer it. It should be noted, however, that Tax-Free Childcare will apply to more than twice the amount of families eligible for Employer-Supported Childcare.
Advice specific to circumstances should be taken and if you require assistance in connection with this or any other tax matter, please contact Magnus Leonard at Rennie Welch on 01573 224391 or by email at firstname.lastname@example.org.
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