HUNDREDS of thousands of parents are failing to cash in on a tax-free childcare scheme worth up to £2,000 per year for each child.
More than 1.3million people are eligible for the help but only 500,000 are claiming it.
Rosie Taylor investigates why 800,000 parents could be a whole lot better off . . .
WHAT IS TAX-FREE CHILDCARE?
Eligible parents get up to £500 every three months — a total of £2,000 per year — per child to help with care such as nurseries and after-school clubs.
You can also use it toward the cost of holiday clubs.
To qualify, both you and your partner (if you live together) must be working at least 16 hours a week, on minimum wage — which means you must both earn at least £2,379 every three months.
If you are self-employed or have an irregular income, it is OK if you do not earn this amount every three months as long as you earn at least a total of £9,518 over the course of the year.
Families can claim for every child until the September 1 after their 11th birthday (or after their 16th birthday if they are disabled).
You cannot use the scheme if you are on Universal Credit or receive tax credits — and you risk losing your benefits if you apply.
But you can claim for help with childcare costs separately through Universal Credit instead.
See gov.uk/childcare-calculator for further advice.
HOW IS IT TAX-FREE?
The scheme was designed so parents did not have to pay tax on earnings they then use to pay for childcare.
A very simple example is that, typically, for every £100 you earn, you pay £20 to the Government in tax.
But under the tax-free childcare system, if you pay in £80, the Government will top this up by £20 — essentially giving you the tax you paid “back”.
You then have £100 which you can only use to directly pay to registered official childcare providers, including nurseries, nannies and after-school clubs.
But Rajan Lakhani, personal finance expert at smart money app Plum, says the term tax-free childcare is “confusing” because it the help is not actually based on how much tax you pay.
“You’re either eligible or you’re not,” he says.
If the system was actually tax-free, then parents would be able to claim up to 20 per cent of everything that they spend on childcare.
Yet the £2,000 limit means many parents will not get enough back through the scheme to cover the tax they have paid out on their earnings.
The allowance has not increased since the scheme was first introduced in 2017, despite child-care costs rising by 27 per cent since then.
COMPLICATED SYSTEM
Although you can get up to £2,000 per year under the scheme, you are only allowed to claim up to £500 every three months (or £1,000 every three months for a disabled child).
You only get the top-up when you pay in, so you must pay £2,000 every three months (a quarter of a year) to receive the full £500.
And the allowance does not roll over, so if you claim £300 in the first quarter, you can still only get £500 in the next quarter — even if you pay in more.
The confusing system also means you need to carefully plan when you make payments.
For example, if you have already used up your allowance for the three-month window and pay in more money, you will get nothing.
It can be better to wait for the window to reopen, so you get the top-up when you pay in — although you will need to make sure you don’t fall behind on payments with your childcare provider or your child may lose their place.
To help you work out what to pay, you can use the calculator at taxfreechildcarecalculator.com.
HOW CAN I GET IT?
You need to register online at gov.uk/apply-for-tax-free-childcare.
Only one parent can have an account for a child, regardless of whether or not you live together.
You then pay money into your online tax-free childcare account by bank transfer.
Within three working days, the extra top-up you have got from the Government will appear in your account.
Then you can set up a payment directly to your childcare provider, as long as they are on the approved list — Ofsted-registered providers should be eligible.
You will also have to reconfirm your eligibility online every three months — if you miss out on the window, your top-up payments will stop until you reconfirm.
HIS eldest son had been attending nursery for a year before Ed Fraser heard from a friend about the tax-free childcare scheme.
Ed, 39, and wife Amy, 35, from Reading, had been paying out £174 weekly – around £9,000 per year – for their son, now five, to attend nursery three days per week.
They realised too late that they could have claimed £1,800 over the year through the Government’s tax-free childcare scheme.
The help would have reduced their annual nursery bill to around £7,200.
Ed says: “We were kicking ourselves that we had missed out on the money but we were also frustrated because we felt someone should have told us about it.”
The couple, who now run financial website The Parent Money Coach, are far from the only parents to have found accessing the scheme a headache.
A FLURRY of mortgage lenders chopped rates this week as hopes of a Bank of England interest-rate cut looms.
Halifax, NatWest, TSB and Santander all delivered cuts this week, following those from Barclays and HSBC earlier this month.
Mortgage rates have been falling steadily over the last few weeks, reversing upward trends seen earlier this year.
The typical two-year mortgage rate now sits at 5.9 per cent, down from 5.93 per cent at the start of June, according to data site Moneyfacts.
The average five-year deal is 5.49 per cent, down from 5.5 per cent at the beginning of June.
The change is good news for homeowners looking to remortgage or anyone in the process of buying a property.
Mortgage rates are largely driven by when money markets expect the Bank of England base rate to change.
But forecasters say an August rate cut now hangs in the balance after figures from the Office for National Statistics revealed wages are still outstripping inflation.
Inflation has now fallen back to its two per cent target, but despite reaching that milestone there are concerns that inflationary pressures still remain in parts of the economy.
Dean Butler, from Standard Life, said: “It’s worth it for mortgage holders coming to the end of fixed rate deals to keep a close eye on new deals coming to the market, if they’re thinking of refixing.”
HOLIDAYMAKERS have been urged to avoid an easy mistake that could cost them over £100 extra on a week-long break.
Parking at the airport is a must for many, but new research shows prices are rising.
For example, last August, parking at London Luton Airport cost around £16.02 a day, while it costs around £20.28 a day this summer, says research by Airport Parking Shop for Sun Money.
But prices go up steeply the closer you get to travel.
Around one in ten travellers leave booking airport parking until the day before they go on holiday, and our research shows doing this may double the cost.
Booking car-parking on site at London Gatwick airport two weeks before flying in August last year cost £138.74 for seven days.
But if you had left booking until the day before flying, the same number of days would cost £276.64 – almost twice as much.
And if you booked parking for a week at Birmingham airport two weeks in advance, you would pay £105.43.
But leave it to the last minute, and you will fork out an extra £80 – £189.28 in total.
Robert Lelukiewicz, head of customer service at Airport Parking Shop, said: “Leaving booking parking until the day before your travel means the cost goes up even more, meaning travellers are missing out on savings.
“I would urge holidaymakers to make parking plans as early as possible to avoid higher prices.”
Laura Purkess
