Whether you've a wee tot or big teen, the costs of childcare can be prohibitive. Yet 100,000s of working parents are missing out on £1,000s of cash, benefits and easy help.
This step-by-step guide to boosting your childcare budget includes the unique childcare tax credit calculator, special childcare vouchers, free school schemes and more.
Step by step
Childcare isn't just for kids
The term childcare conjures up an image of a baby in swaddling cloth being doted over by a kindly nursery nurse. And while that is one element, actually it stretches far wider... any childcare you're paying for includes children of school age too.
School age generally means aged 16, but there are slightly different rules for:
Vouchers: Up to the first Saturday following 1 September after your child’s 15th birthday (or 16th birthday if they're registered blind or receive Disability Living Allowance)
Tax credits: Up to their 20th birthday as long as they are in full time education; you need to specifically claim after the 1st September following their 16th birthday and you MUST tell the tax office within one month if your child stops their education
So...
If you're paying for your stubbly six foot 15 year-old to go to an after school or summer holiday club that can count too.
It must be a registered provider
Whether your paying with vouchers, tax credits or cash, the key is that the childcare provision is registered and regulated by Ofsted. This includes after school and summer clubs, nurseries, playgroups, nanny, childminder or au pairs. If you ask, most providers will simply tell you if they're registered but you can find out from the following:
The main source of information in England is the local Families Information Services (FIS), which should be able to tell you about the provision available in your area. Its number is 0800 234 6346. There is no central contact in Scotland, Wales and Northern Ireland, yet the FIS will be able to tell you the telephone number for your area. Plus you can check on these official websites:
In England. Go to the Ofsted website or call 0845 601 4771
In Wales. Go to the Care Standards Inspectorate
In Scotland. Go to the Care Commission
In Northern Ireland. Contact your local Health and Social Services Trust via the DHSSPS website.
Alternatively go to Family Information Directory where you can find local registered childcare.
Step 1: Grab tax credits
Did you know?
The average childcare tax credit payout is £68 PER WEEK. That's OVER £3,500 per year!
It's a common misconception that tax credits are for the unemployed, actually it's the opposite, you have to be in work. The Childcare Tax Credit is designed to help working parents cover some of the cost, so that they still gain by working.
The money available is huge, so it's important to check you're eligible and it's possible 100,000s of families are missing out.
It's worth knowing it's not officially called the Childcare Tax Credit, its technical name is the Childcare Element of Working Tax Credit, yet as that's long-winded we've shortened it for the purposes of this guide. Please note it's not the same as Child Tax Credit.
Unfortunately the entitlement system and eligibility criteria are ridiculously complex, but after painstaking work it basically boils down to the following rule of thumb....
To qualify for child tax credit you must:
Be a single parent working 16+ hours a week
Be in a couple both working 16+ hours a week
If that's you, and your total household income's under £40,000, you should DEFINITELY check your entitlement
Having said that, even some with household income above £40,000 may be eligible for decent payouts, especially if you have more kids, or a disabled child. Also, if either you or a partner are disabled you both may not need to work 16+ hours a week.
For a full and detailed guide to Tax Credits see the Tax Credits briefing note.
How much can you get?
This tool’s developed to give you a rough idea of the type of payout to expect on the childcare element of tax credits, other (Tax Credits are usually separate although there can be some overlap). There are too many other variables (eg if you or your child have a disability) for the tool to be strictly accurate so please see it as a quick indicator of likely eligibility. After that, go to the tax credit office for the firm numbers.
For the purposes of this tool if you only have childcare costs at certain times of the year (e.g. Summer Holidays), total the cost over that time, and divide by 52 for the average weekly cost. Eg £1,000 over the summer is £19 a week. If you apply for the credit you'll just get the payments at the time you need to pay for the childcare.
Childcare Tax Credits Calculator
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Once you've changed this, please refresh this page to try again
Heads Up: Tax Credit Changes in Apr 2011
The Tax Credit changes announced by the government during the June 2010 Emergency budget don't start to take effect until Apr 2011. Until then everything's the same so families earning under £66,350 should check to see if they're eligible.
From next April most families with £40,000+ annual incomes will get fewer tax credits, while some on lower incomes will see the 'child element' increased by £150. The 'baby element' (extra cash for children under 1) is also being dropped.
In 2012 the income figure is dropping again to around £30,000 but the 'child element' will increase by a further £60.
Childcare Tax Credit Q&A
If you're entitled to tax credits, it's worth understanding your rights before starting. Don't worry it's not too complex and while you will have to fill out forms, there's a helpline that can help you do it.
How do I apply and check my exact eligibility?
Rather strangely the government has moved away from the internet for tax credits and prefers people to call the tax credit helpline on 0845 300 3900 to see if they're eligible and find out how to apply. The helpline is open every day, including weekends, from 8am to 8pm (although you can also check on the HMRC Questionnaire).
How is the cash paid?
It's paid directly into your bank or building society account each week or month. You can get help for up to 80% of eligible childcare costs, which is limited to £175 a week for those with one child and £300 for those with two or more children; meaning a maximum payout of £140 or £240.
What counts as being a single parent?
If you're married or living with someone, then you must put in a joint, rather than single, application for tax credits. You can only put in a single claim if you don’t have a partner. If you're a permanently separated couple, then you are counted as a single parent and the payment is made to the child’s main carer.
What counts as income?
It’s any money earned from paid work (or self-employed profits) plus any extra income above £300 you (or a partner) receive from a pension, savings, renting out a property, or things such as a trust or interest in the estate of a person who has died.
Yet you don’t need to include maintenance money (payment from an ex-partner to help cover the costs of raising your children) or your children’s income.
When do I need to apply by?
You can apply at any time during the year if you're a new application, though if you're renewing and have been asked to send back a form it's important you do that by 31 July.
What do I do if the childcare costs increase or decrease?
If your childcare costs go up, tell them about it immediately as you may be able to get more money and if you're late you can only backdate it for up to three months.
If the costs go down, do the same as you're then being overpaid and will have to give the money back, never easy if you've already spent it.
I use/pay more for childcare in the holidays, AM I still Eligible?
Yes. If you pay more in the summer, your assessment's based on your average year-round childcare costs and that includes summer and other holidays. So add up the total cost for the year and that's what you say. This means you need to try to budget over 12 months. Use the free Budget Planner to help.
If you just pay for care in the summer, you'll only get a payment during that time (in previous years summer cash was spread over the whole year) so contact the Tax Credit office to tell them as soon as you can.
What if I lose my job or have my hours cut to under 16?
This benefit is for parents who work over 16 hours a week, so you won't be eligible anymore (unless you get new work). You do need to inform the tax credit office or you could have the money reclaimed at a later date, really hitting your cash flow. The tax credit won't be cut off immediately though, you should get a four week grace period.
The concept is that if you're not working you don't need childcare. Yet there is a scheme to help out-of-work parents with a partner who’s in work and a household income under £20,000 to attend training classes. Direct.gov has more info on the Free Childcare for Training and Learning for Work scheme, also see the Redundancy and Mortgage Arrears Help guides.
For a generalised check-up of whether you’re getting all the help you're due, read the Benefits Check-Up guide.
Step 2: Can you get childcare vouchers?
Childcare vouchers are a little known scheme, which can save many parents with kids aged up to 15, over £1,000 a year on childcare. They need to be offered via employers, but many large and small companies take part.
The key is it enables you to pay for childcare out of your PRE-TAX and National Insurance income. While this doesn’t sound much, the benefit is huge. Most employers work it on a salary sacrifice system, which works something like this (basic rate tax example)...
You give up £1,000 of salary, worth £700ish in your pocket. You get £1,000 of Childcare vouchers. This means you're £300 better off per grand.
Of course, once you no longer need to pay for childcare, you simply get your salary back.
BOTH parents are allowed to get a maximum of £243 per month worth of vouchers meaning some families will gain £1,000s from this over a year. To find out more read the full Childcare Vouchers Guide
Warning! Childcare vouchers can impact credits
If only it were that simple, sadly while childcare vouchers are conceptually great, they interact with the amount of Childcare Tax Credits you're entitled to. So while many gain from the vouchers, some people, especially on lower incomes are WORSE off using the vouchers.
This happens because..
Vouchers don't count as paying for childcare
The more you pay in childcare, the more tax credits you're eligible for, but any amount you pay in vouchers, doesn't count towards that. For example if you pay £100 a week for childcare, but use £60 of vouchers, for tax credit purposes you're only spending £40 a week on childcare, so it's this figure you must enter on your Tax Credit claim form.
You must notify the tax credit office within a month that you start using childcare vouchers, so any changes can be taken into account. You may be fined if you don't.
Salary sacrifice means you've a lower income
If you're giving up salary to get vouchers, then for benefit purposes you earn a lower amount, this will increase your eligibility for tax credits.
Plus, read my blog on Ed Balls' reply to my Childcare Agitation fears.
When's it worth using them
Hard and fast rules are very difficult as there are so many variables... but here's some rough guidance.
If you're not eligible for childcare tax credits. In this case, there's no problem, so if you're a couple where one works under 16 hours a week, or a single parent who does, or your income is too high to qualify, then there's no impact. So go for the vouchers.
Family income above £36,000? You are likely to be better off accepting childcare vouchers unless you've more than three children.
-
Childcare costs above £175 for one child, £300 for two or more? You will always be better off using vouchers for any amount above that, and may be better off for amounts below (the higher your salary the more likely).
-
Family income below £42,000? (depending on how many kids you have): Providing you're eligible for tax credits you're likely to be better off getting them than using vouchers if you're earning: under £24,000 (one child); under £30,000 (two kids); under £36,000 (three kids); under £42,000 (four or more kids).
Do remember this is only rough guidance, but that's about as good as it gets. If this impacts you it's important to do a more detailed comparison use the Government’s HMRC vouchers vs. credits calculator to check in detail or call the Tax Credit Helpline on 0845 300 3900.
Heads Up: Childcare Voucher changes Apr 2011
The Childcare Voucher changes announced by the government during the June 2010 Emergency budget don't start to take effect until Apr 2011 so now's a good time to start using the scheme if you don't already.
From that time, the value of vouchers will remain at £55 a week for basic rate taxpayers, but will be reduced to £28 and £22 per week for higher and additional rate taxpayers respectively (rather than the Labour government propsed changes that higher rate tax payers will get 20% tax relief instead of the current 40%).
Step 3. Free childcare for 3 or 4 year olds
Find out more
Call the Families Information Services (FIS) for info. Those in Wales, Scotland and N.I. will be given the number for their local centre.
Tel: 0800 234 6346
Or check your child qualifies on the DirectGov site
There are free ‘early learning’ classes available for all three or four year-olds (starting from the term following your child's third birthday). For at least 38 weeks a year you’re entitled to 12.5 hours a week, although some Local Authorities offer 15 hours a week and it will be 15 hours for everyone from September 2010 (to be spread over at least three days). Families with a low income may also get free classes for two year olds.
Things may be slightly different in Scotland, Wales and Northern Ireland, call the FIS on the number below to check your entitlement.
In practice this provision is offered at a range of places including Sure Start children’s centres, nurseries, pre-schools and childminders. So if you're paying for childcare, you can swap it for this free provision which could add up to a hefty saving over the year.
Step 4. Free holiday classes and activities
Find out more
Check with your local school, visit DirectGov, or call the Families Information Service for local info.
Tel: 0800 234 6346
More ways to entertain kids:
Provision of holiday childcare for school-age children is often a real hit to the finances. Often parents either need to lose earning power by taking time off work or pay for professional childcare.
An alternative to this is that over the summer, and sometimes during Easter and Christmas, thousands of schools across the UK offer a range of activities for children, from sports coaching to dance and music sessions.
Places aren’t just open to a school’s pupils, so if your school doesn’t have it, check others.
This is a safe and cheap way to resolve holiday childcare needs and if you need to pay for it, then this can be part of your Childcare Tax Credit application (as long as the provider is Ofsted registered). You can usually pay for the holiday provision with Childcare Vouchers, although it's best to check before booking that the school you've picked allows this.
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