Under the new scheme, parents who are working and each earning less than £150,000 a year – and who don’t already receive help from tax credits – will be able to receive 20% of their yearly childcare costs up to a cap of £1,200 per child.
The move is intended to provide a boost for working families, many of whom will have lost their Child Benefit under changes introduced in January this year. But it has prompted a backlash from thousands of stay-at-home mums who will not be eligible for help under the scheme.
Here, we explain how the Chancellor’s new system will work, and if it could help you.
How will the new scheme work?
Parents will be able to open an online voucher account with a voucher provider and have their payments topped up by the government.
For every 80p families pay in, the government will put in 20p up to the annual limit on costs for each child. Parents will be able to use the vouchers for any Ofsted-regulated childcare in England and the equivalent bodies in Scotland, Wales and Northern Ireland.
This can include all types of childcare, for example nurseries, playschemes, childminders, nannies and school-based care.
Who will qualify?
Any family who isn’t claiming tax credits and where both parents are in work but neither earns £150,000 or more can claim. Self-employed people will qualify, but if only one parent works, the family will not be able to get any support, so stay-at-home mums won’t benefit from the scheme.
How much will I get?
That depends on your individual circumstances including how much you pay for childcare and how many children you have. For example, if you have two children at nursery and pay £500 a month for each of them, you would set up an account with a childcare voucher provider and pay in £800, which the government would top up with a further £200. Over a year, the total saving for the two children would be £2,400.
Will all children up to the age of 12 be eligible for help with costs from autumn 2015?
No. The scheme is being phased in gradually, so that from autumn 2015 it will available to all families with a child aged under five and the scheme will build up over time to include all children under 12. Families with disabled children will be able to claim this support until age 16.
Will I continue to get payments if I take maternity leave?
Yes. If you qualify for the scheme before taking maternity or paternity leave you will continue to be eligible while you are not working.
What about the current childcare voucher scheme?
Under the current childcare voucher scheme, parents who signed up before April 5, 2011 are allowed a maximum of £55 a week or £243 per month worth of vouchers. From April 6, 2011 new joiners paying higher or top rate tax had their allowance dropped from £55 per week to £28 and £22 respectively, although basic rate taxpayers joining the scheme are still eligible for £55 a week.
The saving in tax and national insurance is usually worth about £900 a year for a basic-rate taxpayer. Where both parents work, families can save around £1,800 a year.
Around 450,000 families are currently signed up to this scheme.
If you already belong to your employer’s childcare voucher scheme, then you can either choose to stay in it, or switch to the new scheme if you are eligible. You won’t be able to claim both.
The existing childcare voucher scheme will remain available to anyone who wants to sign up before the new scheme comes into effect in autumn 2015. From this date, the current scheme will close to any new applicants. Remember that if you switch out of the existing scheme and into the new scheme, you won’t then be able to move back to the previous scheme.
What other help can I get with childcare costs?
Regardless of your income, when your child reaches the age of three, they will be entitled to 15 hours of free nursery education for 38 weeks of the year. This is payable until they reach compulsory school age the term after their fifth birthday. And from 2014, around 40% of two-year olds will also be able to receive this.
Your employer may offer a workplace nursery. These will be unaffected by the new scheme and won’t be closed to new entrants.
Depending on your income, you may be eligible for tax credits which you can put towards childcare costs. Under current rules, if you have one child, you should be eligible to receive some Child Tax Credit if your income is up to £26,000 a year, rising to £32,200 if you have two children. The basic amount is up to £545 a year, but you could get a further payment of up to £2,690 per child depending on your individual circumstances.
If you are working and on a low income, you may also be entitled to claim Working Tax Credit. Couples with children have to work 24 hours a week between them to qualify. The basic amount of Working Tax Credit is up to £1,920 a year, but you could get more (or less) depending on your circumstances and income.
You can check your entitlement to tax credits by calling the tax credit helpline on 0345 300 3900.
Remember that from October this year existing means-tested benefits will start to be replaced by a single Universal Credit. This payment will be made monthly – rather than weekly or fortnightly as at present. The Tax Credit Office will tell you when you can make a claim for Universal Credit, and stop claiming tax credits.