Increase in Tax Relief for Childcare


Lexington can confirm that from the autumn of 2015, working parents will be offered further childcare tax breaks to subsidise the cost of child care for every child under five. The scheme is expected to be extended to all children under the age of 12 by about 2020. They will be offered a tax-free childcare scheme worth up to £1,200 per child. This will save a typical working family with two children under 12 up to £2,400 a year.

The scheme will initially benefit 1.3 million families, rising to 2.5 million families when the scheme is extended. They will effectively receive basic rate tax relief on the first £6,000 they spend on child care (i.e. £6,000 x 20% = £1,200).

The existing workplace childcare vouchers scheme which is currently subsidised by the taxpayer, will be closed to new claimants from 2015 and phased out. The current childcare voucher scheme allows parents to save around £1,100 annually to cover the child care costs of their entire family. Parents already claiming vouchers can continue to receive this support or switch to the new system. New parents will only have access to the new scheme.

To be eligible under the new scheme, both parents, or a single parent in work, must be each earning less than £150,000 a year and must not already receive support through tax credits or the new universal credit.

The scheme is being introduced following the scrapping of child benefit for higher earners and is one of the biggest measures ever introduced to help parents with child care costs.

Details of the scheme will be finalised after a consultation period. But, it is anticipated that parents will be able to open an online childcare voucher account and have their payments topped up by Government. However, the Chancellor is expected to set out in Wednesday’s Budget (20 March 2013) how the scheme will be funded.

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.’
Is this another measure to boost the UK economy? Possibly! The Government has stressed concerns on the economical state of Britain and its recovery. Introducing a better child care scheme should encourage more parents to continue to work which in turn could provide better results for growth in the UK. In addition this is undoubtedly likely to be well received by those who would ordinarily struggle to meet the costs of childcare.