Tax-free childcare scheme announced for working families

19th March 2013

The Government has announced an innovative tax-free scheme for working families offering childcare potentially worth up to £1,200 per child.
The scheme could save the average working family with two children under the age of 12 up to £2,400-a-year.
Implementation of the scheme is expected to commence from autumn 2015 and will eventually be open to upwards of 2.5 million UK families with children under 12. From the first year of operation, all children under the age of five will be eligible for the scheme, which is expected to include children under 12 in the future.
In order to be eligible for the tax-free childcare support, families must have both parents in work, each earning less than £150,000-a-year,  and not already receiving support through tax credits and Universal Credit.
Parents will be able to recoup 20% of their annual childcare bill - equivalent to the basic rate of tax –  up to a maximum of £6,000 per child.
The new scheme is expected to be a huge extension of support in comparison to the existing Employer Supported Childcare (ESC). ESC will continue to be available for current members, while new claimants will be offered support through the new tax-free scheme.
Eligible ESC recipients will also have the option to move to the new scheme if they wish, but will be unable to receive both.
Prime Minister, David Cameron, said: "If Britain is going to succeed in the global race we must help those who work hard and want to get on.
"Too many families find paying for childcare tough and are often stopped from working the hours they’d like. That is why we are introducing tax free-childcare, saving a typical family with two children up to £2,400 a year.
"This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs."
Parents and guardians who currently receive childcare support through tax credits and, eventually, Universal Credit, will also be offered further work incentives to ensure it is worthwhile to work up to full-time hours for low and middle income families.

An additional £200m of support will be provided within Universal Credit. This is equivalent to covering 85 per cent of childcare costs for households qualifying for the Universal Credit childcare element where the lone parent, or both earners in a couple, pay income tax.

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