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The law in the UK makes it very clear that it’s not acceptable to leave a child on their own if it puts them at risk (it’s also a criminal offence). As a result, childcare is a requirement for many families, whether single or dual parented. According to the Department for Education, in 2016 there were roughly 3,092,100 childcare places available, split across nursery, childminders and group and school providers. However, finding the right provider, securing a place for your child and getting help with the costs can be a complex and frustrating experience.
Childcare costs make up a part of the Working Tax Credit and, if you’re eligible, you could get help with up to 70% of the cost of childcare (working families on Universal Credit could claim up to 85% of monthly childcare cost). To be eligible, parents need to be working at least 16 hours a week and earning below a certain level. There are also restrictions on the childcare provider you can use – the government’s childcare costs calculator is a simple way to work out what your situation entitles you to.
If you are eligible for help with childcare costs then the 2016/2017 rates are:
In addition to Working Tax Credit support, all three and four year olds in the UK are entitled to 570 hours of free childcare per year. This varies depending on where in the UK you live. Most people take this support as 15 hours a week for 38 weeks. The free hours can be used with any Ofsted registered childcare providers, including nurseries and nursery classes, playgroups and pre-schools, registered childminders or Sure Start children’s centres.
A government scheme allows your employer to make direct payments towards your childcare. There is no obligation on employers to do this and it’s very much an individual business decision. The contributions that the employer makes won’t attract tax or national insurance as long as they fall below the following thresholds:
If contributions are more than the above then anyone earning £8,500+ a year will be required to pay tax on the payments made.
Employers can also provide their workforce with childcare vouchers, either as a benefit on top of an existing salary or as part of the salary sacrifice scheme. Salary sacrifice means that you permanently sacrifice a portion of pay in exchange for a benefit such as childcare vouchers. These vouchers are for children under 15 and non-refundable – they can be ‘spent’ with any Ofsted registered childcare provider. The same tax and national insurance rules apply as above.
Employers may also set up their own workplace nurseries. These may be free or subsidised and are counted as a tax perk of the job.
As of April this year, a new scheme means that parents of children aged under 12 can get 20% of the costs of childcare paid for by the government. This is a particularly positive development for self-employed people who are not eligible for childcare vouchers. The scheme works via an online account that parents pay into, which is then topped up by the government. There are caps on government contributions of £2,000 per year.
For most people, the first step is an Ofsted regulated provider. Beyond that it will be down to your individual discretion and instinct.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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