The new scheme enables eligible parents to receive a contribution from the Government of 20% of their childcare costs, up to an annual limit of £2,000 per child or in the case of a disabled child up to £4,000.
The scheme operates between Parents and the Government, technically employers need to do nothing. Parents can pay money into a childcare account and have the payments topped up by the Government. For example, for every £8 paid in by parents, the Government top up payment into the account will be £2.
For parents of children under age 4 on 31 August 2017 the Tax-free Childcare is available from 21 April 2017.Or for a child who is disabled (aged under 17). The scheme is being rolled-out during 2017 in relation to all children under 12 (where parents qualify).
What parents qualify?
Parents will have to be in work, and each earning at least £120 a week and not more than £100,000 each per year. The scheme is designed to be flexible for parents if, for example, they want to get back to work after the birth of a child or work part-time.
The scheme will be available to parents on paid sick leave and paid and unpaid statutory maternity, paternity and adoption leave.
Self-employed parents will be able to get support with childcare costs under this scheme.
What is the role of employers?
Employers can act as a source of information on the scheme, for example by referring employees to the Government web portal for advice.
A good time to provide this type of information is when employees are reviewing the family friendly policies or due to take or return from Employers can also choose to pay into a childcare account if they wish to do so. This could be done by facilitating payment into the childcare account on behalf of the employee. Under this option the employer makes the payment into the childcare account directly from the employee’s net pay via the payroll system.
Employers may choose to make additional payments into childcare accounts without an employee’s net pay being reduced. In this case, the additional payment made by the employer will be classed as earnings and subject to appropriate tax and national insurance deductions. Employers can either make regular smaller payments or a bulk payment.