Parents - changes coming to government childcare contributions

[Participant]

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):

• Clear and easy to understand site showing possible entitlement etc: https://www.childcarechoices.gov.uk/
• Detailed better / worse calculator: https://www.gov.uk/childcare-calculator
• Money saving expert info: http://www.moneysavingexpert.com/family/tax-free-childcare
• DFE operational guidance for local authorities and childcare providers (also mentions what parents have to do): https://www.gov.uk/government/publications/30-hours-free-childcare-la-and-early-years-provider-guide
  

 

[Participant]

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.

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).

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

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.

 

[Participant]

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

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

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.

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

 

[Participant]

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

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.

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

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.

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

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

 

[Participant]

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.

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.

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

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.

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.

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.

 

[Participant]

^ Ok.

I'm sure that's what they're doing . 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.

 

[Participant]

^ Gotcha.

Christ you need a doctorate to understand all of this. Either that or I'm a bit dim (no need to address that).

 

[Participant]

Ah another complicated government scheme to pay for others lifestyle choices, just what we need in the current economic climate...

So we should abolish free state schools? They're also paid for by tax payers with no kids.

And tax payers with kids fund the lifestyle choices of smokers, drinkers, and diabetics with no kids, etc. etc.

It's not a very intelligent argument really and leads down a path of tit for tat debate ad infinitum.

 

[Participant]

Yes, state schools should go, they are pretty terrible in performance and result in kids being indoctrinated with government initiatives such as anti-drugs etc. Not that it even falls into the same category as this scheme.

Just because you are a fan of misguided socialism doesn't make an argument against robbing the poor to pay for the rich an unintelligent argument...

You didn't answer my question. 'State schools should go' hasn't addressed the funding mechanism of schools, just whether they should stay or not. Read harder.

 

[Participant]

Sorry, I'll write you a comprehensive essay and work on my mind reading skills so I can read between the lines in future.

Fair enough. 'So we should abolish free state schools?' was a pretty ambiguous and complex question in hindsight. I can see how this convoluted and confusing string of words might have led you to entirely ignore how schools should be funded.

We should privatise the entire school (and childcare funding) system and let the markets sort it out, otherwise we're just dirty commies really.

 

[Participant]

I answered that question in the affirmative. Have you gone out of your way to deliberately misinterpret what I wrote?

You still haven't said how they should instead be funded.

 

[Participant]

The current system just makes no sense, taxing people and then giving them the money back again, that wastes a load of money in administration.

You really don't seem to have a good grasp of the principles of an effective taxation system.

Firstly, one fundamental tactic of a successful tax system is to collect as much as you can in the first instance then control cash outflows directly, rather than reducing tax collected in the first place. Collecting less in the first instance is exactly what you avoid, especially with school funding, as asking people to pay themselves rather than through taxation will encourage the wrong behaviours (fewer people bothering).

Secondly, there are literally hundreds of examples of things that are collected via taxation and subsequently refunded. Are you saying these should all be abolished due to the 'administration burden'?

Thirdly, unless your proposal creates PAYE process efficiencies, you're not generating any administration savings by doing that. Reducing tax collected by a small amount doesn't reduce the cost of collecting the rest of the tax; there's no incremental cost to collecting primary school taxes as PAYE is taken by income bandings.

So you've successfully introduced a complex and expensive school subsidy system, reduced school attendance, and made absolutely zero efficiencies in doing so. Forgive me if I don't nominate you for chancellor any time soon!

 

[Participant]

If it's as bad for the poor oppressed childcare organisations as Syla5 suggests, why do any offer the funding mechanism at all?

Surely all these awfully hard done by childcare providers would collude to opt out of the funding scheme and carry on depriving their customers of subsidies, letting the market sort the rest out?

The answer is that some are charging too much, and they don't like being called out on it. Besides which, there are loads of ways round it (as Syla5 explains) for those that can be bothered, though Syla5 also paints them as an awfully lazy lot...

 

[Participant]

Our nursery costs £55 per day . It includes everything, but still - an absolute roasting. They do the 15 hours grant thing.

 

[Participant]

It's not the collecting of extra tax that costs money

That's exactly what I said . 'there's no incremental cost to collecting primary school taxes'

the administration is in paying the tax back to people via various benefits. If we did not collect so much tax in the first place we would not need to pay it back.

The administration cost of tax rebates is outweighed by the avoidance costs of not collecting it in the first instance. You haven't a clue what you're talking about .

 

[Participant]

Can't offer a rebuttal so you resort to insults, fantastic. Trying to debate on ocuk is always a pleasure. (!)

How was my reply not a rebuttal? Not one you wanted to address perhaps, but a rebuttal all the same despite you ignoring it.

And I think you need to recalibrate your definition of an insult, or you must walk through life looking through tears.

 

[Participant]

Anyway. I think Energize has had enough attention in this thread.

There seems to be a big trap here for people leaving childcare voucher schemes.

Imagine your childcare costs are currently high and you therefore leave your voucher scheme in favour of tax-free childcare. Then, a year later, your children are now at school but attend breakfast clubs, after school clubs, or any registered childminder arrangement that costs you money during their school career.

Suddenly, childcare vouchers make more sense, but you've left the scheme so the best you can get is 20%.

Am I missing something?

 

[Participant]

Right, well I've signed up for the 30 hours for my youngest and ticked the radio button that said 'I want to keep using childcare vouchers but claim the 30 free hours'. Our nursery was listed under the scheme members too! Hooray!

Since he does approx 24 hours per week, we should be approx. £650 per month better off from September... .

 

[Participant]

Do they do the stretched offer or are they only open during term time?

Since your boy is only doing ~24 hrs / week you would be better to take a stretched offer of say 24 hrs / week for 47.5 weeks, rather than the standard offer of 30 hrs / week for 38 weeks and not get your full entitlement

They're open all year round so I presume I can get the former.

 

[Participant]

I just had an email thru about tax free childcare and the 30 free hours. Anyone else had this, it sounds like the extra free hours means you get emailed a code to give to your nursery but not sure if theyve started sending them out yet.

I got a code when I applied for the childcare account on the government website. We've given the code to our nursery, but the application said you need to reconfirm every three months, which is mid August for us.

So they have started giving them out, but I'm not sure how much use they at this stage if they're not eligible until September and we need another code before then!