Whilst it is not obligatory to offer tax-free childcare, many childminders decide to sign up for the scheme to make their services more accessible to a wider range of working parents. While the registration process might initially seem complex, this guide aims to simplify it, detailing everything you need to know about how to apply for tax-free childcare.
Read below for all the information you need about the scheme and how to sign up.
Contents:
- What is the tax-free childcare scheme?
- What are the tax-free childcare eligibility criteria?
- How do I offer the tax-free childcare scheme?
- How much funding can I expect to receive?
- Can I work more hours than the scheme covers?
What is the Tax-Free Childcare Scheme?
Tax-free childcare is a government initiative for working parents where the government will cover childcare costs of 20p for every 80p paid by the parents. The fund is paid directly to the childcare provider and is paid in conjunction with the money from the parents, meaning the childcare provider’s income is not affected.
The scheme can only be used with registered childcare providers. For childminders, this means you must be Ofsted registered. Payments are made through a specific account which needs to be set up by both the childcare provider and parents, the process of how to do so is detailed below.
Parents with multiple children eligible for the scheme can receive the maximum amount per child, there is no household cap. The scheme runs for children until they reach the age of 11 and stops on 1st September following the 11th birthday of the child. For disabled children, the scheme runs until they reach the age of 17.
What are the Tax-Free Childcare Eligibility Criteria?
The scheme is available to the majority of parents, as the criteria require a minimum weekly income of £120 and a maximum annual income of £100,000, the scheme is only available to working parents but not those who claim any form of benefits or support. If you are currently furloughed or on the Coronavirus Government Job Retention scheme, you may still be entitled to access the scheme.
The Tax-Free Childcare scheme offers parents a financial contribution to their childcare costs of a maximum of £500 every 3 months, capped at £2000 per year per child, for qualifying families with children under 12 years old. This allowance increases to £1000 every 3 months, capped at £4000 per year for disabled children under 17 years old.
Therefore a parent could pay £8000 on registered childcare provision and receive £2000 of Government funding throughout the year, any costs beyond this will not be covered by the Tax-Free Childcare scheme. As a provider, participating in this scheme can enhance your attractiveness to new clients, potentially expanding your clientele.
How do I Offer the Tax-Free Childcare Scheme?
Registration is a straightforward process for all Ofsted-registered childminders. You simply need to create a tax-free childcare account on the Government website, linking it to your bank account. This enables parents to transfer their tax-free childcare payments directly to you.
In 2017, when the scheme was launched, all registered childcare providers were sent an invitation to register, along with a unique 11-digit user ID. If you haven’t received this letter, have misplaced your code, or are newly registered, you can contact the Government helpline for assistance.
To register, you’ll need your unique user ID, bank details, and business postcode. The whole process takes about 10 minutes.
How Much Funding Can I Expect to Receive?
Parents using the scheme will pay you from their government-registered childcare account and the payment will be evident as:
- It will be called National Savings A on your bank statement.
- It will include the specific child’s reference number, a 4-letter and 5-number code made up of the child’s initial and first 3 letters of their surname plus a series of 5 numbers. e.g. BSMI12345
- It will state their Tax-Free Childcare account number which is 13 digits long and start at 1100 with the letters TFC before it. E.g. TFC 1100123456789
Alternatively, you can ask the parents for their unique codes to be sure of the payment.
It’s important to note that you can continue to accept payments through your usual methods alongside tax-free payments, even from the same parent, should they exhaust their tax-free allowance.
Can I Work More Hours Than the Scheme Covers?
Yes! The scheme may only cover parents up to a certain limit but if they require more hours beyond this threshold they can still use you as a provider and just cover the full cost themselves. The payments will need to be made directly by the parents and will not be connected to the tax-free childcare account.
Offering Tax-Free Childcare not only makes your services more appealing due to reduced costs for parents but also establishes your commitment to supporting families. Though the sign-up process may initially seem complicated, the long-term benefits are substantial, making it a worthwhile investment of your time and effort.