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Parents - changes coming to government childcare contributions

Discussion in 'General Discussion' started by Participant, Mar 29, 2017.

  1. Participant

    Caporegime

    Joined: May 13, 2003

    Posts: 27,231

    Location: Warwickshire

    Disclaimer: I've researched arrangements in England. Arrangements in the provinces may be different and you may be lucky enough to already receive some of the following...

    If people weren't aware, there are some new childcare arrangements kicking in this year that could save you some cash, with savings typically exceeding the benefit from childcare vouchers (the schemes are mutually exclusive).

    From April this year you'll be able to apply for a new government 'tax-free' childcare account, where you'll get 20p for every 80p you put in.

    Free childcare allowance is also being extended from 15 hours per week (for 38 weeks of the year) to 30 hours for 3 and 4 year olds, from September this year. 15 free hours is also being extended to certain 2 year olds (though I'm confused by the eligibility criteria on this one).

    The key points I've gathered are:
    • If you have a child under the age of 12, you'll get 20p from the government for every 80p you provide up to £2k
    • Neither you nor your partner can be earning more than than £100k to be eligible (is how I've interpreted the wording on the government website)
    • If you have childcare vouchers via your employer, you'll need to stop these before you can get the 20p / £1
    • If you currently receive 15 hours free childcare per week for your 3/4 year old, you'll be able to get 30 hours when the scheme kicks in
    • If you have a 2 year old in childcare, you may be able to get 15 hours free for them too
    Edit - useful links (some I've since found and some have been provided by people below):
     
    Last edited: May 2, 2017
  2. Liquid_Entity

    Soldato

    Joined: Apr 11, 2006

    Posts: 5,320

    Location: East Grinstead, W Sussex

    Tagged for more info later. Ours is 18mths right now.
     
  3. ci_newman

    Sgarrista

    Joined: Feb 24, 2004

    Posts: 8,276

    Location: Hook, Hants

    The last time I investigated this, the new scheme only helped high-rate tax payers and only if you had more than one child in childcare. For basic-rate tax payers, the old child-care voucher scheme was a better fit if you had a single child in childcare, as the deductions are made pre-tax.

    e.g. Two parents contributing the maximum allowance of childcare vouchers was equivalent to tax savings of £2000 / year.

    Those ideas might be wrong now though, I haven't looked into the new scheme proposals since they keep delaying it.
     
  4. jonessa

    Gangster

    Joined: Nov 16, 2014

    Posts: 359

    We've got our first child due in June - Me and my wife both earn upwards of 45k a year (so pay mid tax bracket). Is this something we need to start investigating now? I've already been advised to start contributing to childcare vouchers but haven't started yet - should I?

    Thanks
     
  5. Freakbro

    Capodecina

    Joined: Jul 29, 2010

    Posts: 11,032

    Location: Lincs

    The voucher schemes are being extended until April 2018 for new applicants. If you are currently on Vouchers you will stay on them even after April 18 afaik

    To see whether you are better off on Vouchers or Tax-Free Childcare check out this calculator www.gov.uk/childcare-calculator

    Also, the tax-free childcare account is being phased in. It starts with the youngest children only in April and will be for all children (up to the criteria age) by the end of the year I believe
     
  6. Participant

    Caporegime

    Joined: May 13, 2003

    Posts: 27,231

    Location: Warwickshire

    What I can tell you is that you'll still be able to claim the 30 hours as well as use the childcare vouchers, you just won't be able to run childcare voucher (salary sacrifice) + tax free childcare concurrently.

    I used the detailed online illustrator at https://www.gov.uk/childcare-calculator and it reckoned I'd save ~£500 per year by using tax-free childcare rather than childcare vouchers, I guess because I'm a higher rate tax payer and childcare vouchers are limited to £124 per month for me (£243 for my wife, who's a basic rate tax payer).

    Get involved with childcare vouchers as soon as you possibly can, because it's necessarily cheaper than paying out of post-tax income for a couple each earning £45k.

    Then apply for the childcare account in April and start using it / stop childcare vouchers as soon as possible.

    Even if you have some credits in your childcare voucher account when your tax-free childcare kicks in, you can still use any remaining balance to pay nursery fees and carry on contributing to your tax-free childcare account. You'd save ~£100 per month by paying into childcare vouchers until September, when it will *probably* be better to convert to tax-free childcare.
     
  7. ci_newman

    Sgarrista

    Joined: Feb 24, 2004

    Posts: 8,276

    Location: Hook, Hants

    I've run the calculator and the difference for me would be saving ~ £100 / year to change to the new scheme. Considering my son should get the 30 free hours next April which will cover all his costs, it doesn't seem worth the hassle of changing to the new scheme for me, since I don't know when I can start using it.
     
  8. ci_newman

    Sgarrista

    Joined: Feb 24, 2004

    Posts: 8,276

    Location: Hook, Hants

    You can't use the childcare voucher scheme until the child has been born, but you can use it whilst your wife is on maternity leave.
     
  9. Freakbro

    Capodecina

    Joined: Jul 29, 2010

    Posts: 11,032

    Location: Lincs

    Also regarding the 30 hrs free childcare, it's only optional for Nurseries to offer it - not mandatory like the 15hrs

    So just check your nursery will be implementing the 30hrs
     
  10. Haggisman

    Capodecina

    Joined: Oct 6, 2004

    Posts: 11,867

    Location: Birmingham

    Just done the calculator and the new scheme would cost us an extra ~£288 a year.

    As far as I can work it out, the differences in savings are

    The new scheme will save you the basic rate of tax (20%) on the full amount you pay in.


    The old scheme will save you tax on the amount, plus NI contributions, plus pension contributions*, plus student loan contributions.

    E.g. in my case £243 of vouchers costs me ~£143, so I'm saving almost exactly £100/month, if I take my student loan and pension payments off, it ends up costing me ~£160

    Using the new scheme would cost ~£195 for the same value of vouchers (if my maths are correct)


    * this may be seen as a negative depending on how much you want to pay into your pension pot.
     
    Last edited: Mar 29, 2017
  11. Participant

    Caporegime

    Joined: May 13, 2003

    Posts: 27,231

    Location: Warwickshire

    My assumption would be that those not offering it can expect a mass exodus and to go out of business :D.

    Interesting. Doesn't it also depend on how many hours your child will be at nursery?
     
  12. Freakbro

    Capodecina

    Joined: Jul 29, 2010

    Posts: 11,032

    Location: Lincs

    Since capacity in an area is always an issue, the parents won't have that much choice of where to go tbh, of the 4 Nurseries in my town, only 1 is offering the 30 Hrs

    And since the funding rate is generally lower than the hourly rate charged, a lot of Nurseries will be going out of business if they do offer it :p

    Also, for full daycare Nurseries, it's not much of an issue as the child can be there up to 50 hrs / week anyway, but the small term-time pre-school nurseries that only deal with 15 hr / week free funded children are the one who will struggle to implement it, as it's effectively doubling their numbers and they don't have the space or staff to man it
     
  13. Participant

    Caporegime

    Joined: May 13, 2003

    Posts: 27,231

    Location: Warwickshire

    That's interesting; have the 3 others categorically stated that they won't be doing it, as the ones near me haven't committed yet pending more details of the scheme? My other question would be - do these nurseries currently offer the 15 hours and if so, will they continue to do so?

    My childrens' nursery offers the 15 hours but hasn't yet committed to the 30 hours. At least I won't be any worse off than at present as a result of their eventual decision I guess.

    They'll offer partial credit, I assume. E.g. if the nursery's charge for 30 hours is £200 but the government only reimburses £150, you'd only pay the nursery the net £50 as they'd get the rest from the tax payer, which is how it works for the 15 hours, at least for our nursery.

    Well they could implement it, they just continue to accept numbers up to their potential capacity.
     
  14. theone8181

    Wise Guy

    Joined: Mar 27, 2013

    Posts: 1,823

    Bare in mind, at the nursery my daughter goes to they divide the current 15 hours up into 3 hour chunks (3 hours/morning, 3 for the afternoon) so you still pay for their 'wrap around' care. Not sure if the 30 hours will end up being 6 hours per day or if it can be used in one go. But obviously anything that reduces childcare cost is good for me.
     
  15. ci_newman

    Sgarrista

    Joined: Feb 24, 2004

    Posts: 8,276

    Location: Hook, Hants

    Top-up fees are not permitted with the free childcare hours. They can charge extra for meals / nappies / whatever, but not the actual hours of attendance.
     
  16. Haggisman

    Capodecina

    Joined: Oct 6, 2004

    Posts: 11,867

    Location: Birmingham

    Well, if the limit is £2k, then that's less than the voucher limit for a 20% taxpayer, which is £243/month, or £2,916/year, so if you're paying more than that for your childcare, you'll be even worse off on the new scheme.

    E.g. £300/month childcare, using my figures:

    Old scheme: £243 vouchers + (£300 - £243 = £57 cash) = £143 voucher cost + £57 cash = £200 actual cost to me.

    New scheme: £200 vouchers + (£300 - £200 = £100 cash) = £166.67 voucher cost + £100 cash = £266.7 actual cost to me.

    I've assumed the £2k max is how much you can pay into the scheme (£166.7/month), so with the 20% govt top-up that's £2.4k (£200/month), if the £2k is including the top-up then it's even worse!

    The old scheme also has the advantage that it's £243 per parent, so if you're both getting the full amount then that's £486/month (again, using my figures that's at a cost of £286).

    The new scheme may have an advantage when it comes to multiple children however.

    Using the same figures as above, a second child with the same costs as the first:

    Old scheme: £300 cash = £300 actual cost to me, total for both children £200 + £300 = £500

    New scheme: £200 vouchers + (£300 - £200 = £100 cash) = £166.67 voucher cost + £100 cash = £266.67 actual cost to me, total for both children £266.67 x2 = £533.34

    third child:

    Old scheme: £300 cash = £300 actual cost to me, total for both children £200 + £300 + £300 = £800

    New scheme: £200 vouchers + (£300 - £200 = £100 cash) = £166.67 voucher cost + £100 cash = £266.67 actual cost to me, total for both children £266.67 x3 = £800.01


    Now lets look at full time childcare @ £35/day = ~ £750/month

    Old scheme: £243 vouchers + (£750 - £243 = £507 cash) = £143 voucher cost + £507 cash = £650 actual cost to me.

    New scheme: £200 vouchers + (£750 - £200 = £550 cash) = £166.67 voucher cost + £100 cash = £716.67 actual cost to me.

    a second child with the same costs as the first:

    Old scheme: £750 cash = £750 actual cost to me, total for both children 650 + £750 = £1400

    New scheme: £200 vouchers + (£750 - £200 = £550 cash) = £166.67 voucher cost + £100 cash = £716.67 actual cost to me, total for both children £716.67 x2 = £1433.34

    third child:

    Old scheme: £750 cash = £750 actual cost to me, total for both children 650 + £750 + £750 = £2150

    New scheme: £200 vouchers + (£750 - £200 = £550 cash) = £166.67 voucher cost + £100 cash = £716.67 actual cost to me, total for both children £716.67 x3 = £2150.01


    So it looks like with 1 parent getting childcare vouchers, the new scheme will just about break even if they have 3 children in childcare.

    If both parents are getting vouchers then the old scheme is still better.

    However this is based on a 20% taxpayer. It may be different for 40%
     
  17. Participant

    Caporegime

    Joined: May 13, 2003

    Posts: 27,231

    Location: Warwickshire

    That's weird because between my wife and I, we pay £4,404 per annum on childcare from vouchers alone, yet the online tool reckons we'd be £500 better off using the tax free scheme.

    Edit - sorry, one of us is a higher rate tax payer so maybe that's the difference as you stated your analysis was based on basic rate tax payers. If so, seems odd for UK gov to introduce something that primarily benefits higher earners.

    The limit is £2k per child by the way.

    The cost to a basic rate tax payer of £243 of vouchers is £165 per month isn't it, not the £143 above? But yeah, good analysis, but something weird's going on with the calculations somewhere.

    On our nursery invoice they deduct the government grant and childcare vouchers and we just pay the balance with cash. Does that mean they're 'permitting top-ups'? That would effectively mean state-controlled nursery pricing! Though I suppose it stops people charging £100 per day just because the government is paying some of it.
     
    Last edited: Mar 29, 2017
  18. jamief

    Soldato

    Joined: Sep 23, 2005

    Posts: 5,254

    Location: Dundee

    I've had a tax-free childcare account for about 2 months now, happy to answer questions if anyone has any.

    Albeit I'm in Scotland so the free places part doesn't apply to me.
     
  19. Haggisman

    Capodecina

    Joined: Oct 6, 2004

    Posts: 11,867

    Location: Birmingham

    Because they are paid pre-tax, the actual effect on your net pay can vary; in my case they may be costing me £165, but because of the effective reduction in salary, my student loan and pension contributions also drop by ~£20, hence the extra saving.

    As i said, depending on how you view it, the reduction in pension may be seen as a negative, and i guess theoretically the lower student loan payments may actually end up costing me more in the long run due to interest, but it's still nice to have an extra few ££ in my pocket :p

    15 hours free is 15 hours free regardless of whether the nursery charge £5 or £50 per hour, obviously if you want say 20 hours then you'd have to pay for the 5 hours on top.

    By not allowing topups, ci_newman means the nursery aren't allowed to charge you any shortfall between what those 15 hours would cost and what the govt. actually pay them
     
  20. Participant

    Caporegime

    Joined: May 13, 2003

    Posts: 27,231

    Location: Warwickshire

    ^ Ok.

    I'm sure that's what they're doing :D. This gets complicated quickly...

    Does anyone know, when it says 'You can’t use Tax-Free Childcare at the same time as childcare vouchers', does that apply per household? So could my wife keep her childcare vouchers while I use tax-free childcare?

    This would allow me up to £4k per child of contributions from UK gov vs. the max of £1,488 per annum that I can get in vouchers.
     


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