How to get help with childcare costs

Ways to get help with childcare costs

Parents can do little about the amount charged for childcare. Although they have a few options in that regard

1. shop around (but is cheapest best when it comes to childcare??)

2. ask friends and relatives to provide the childcare

3. or share a nanny with another family

So parents need to look at ways to ease the financial burden and get help with childcare costs…...

Tax credits

First of all parents need to check to see if they are eligible for the Childcare Element of Working Tax Credits.

People often dismiss tax credit as only being for people who are claiming benefits, which is nonsense. Working parents can claim help with the cost of childcare via the Childcare Element of the Working Tax Credit so they can carry on working. That’s the point of it! Parents could receive up to £122.50 a week for 1 child or up to £210 a week for 2 or more children.

Luckily the Government has produced a simple online calculator which allows parents to quickly work out if they are eligible and how much they can claim.

https://www.gov.uk/tax-credits-calculator

Childcare vouchers

Next up, parents who are employed should make use of childcare vouchers.

If your employer is signed up to the national scheme you could swap some of your gross salary for tax-free vouchers, up to certain limits, to pay for nursery care and pre- and post-school club fees for children aged up to 15 (until 1st September following their 15th birthday), or 16 if they are disabled (until 1st September following their 16th birthday).

Paying for childcare via childcare vouchers means that the cost is reduced due to the savings made on income tax and national insurance.

The exact amount depends on your level of pay, with the maximum saving being £933 a year. But the beauty of childcare vouchers is that both parents can use them if their respective employers have signed up to a registered scheme, meaning a maximum potential saving of £1,866 a year!

Or put it another way, because you buy the vouchers before tax and National Insurance it means that it knocks around 30% off the cost of funding childcare for a basic rate tax payer. What’s not to like about that!

The catch – in sacrificing your salary it may impact on areas of your finances which depend on the earnings on which you receive tax relief, such as pension contributions. Importantly, if you receive tax credits you may not be better off using the vouchers. This official calculator (https://www.gov.uk/childcare-vouchers-better-off-calculator) can work out whether you’d be better taking childcare vouchers or not.

The new Tax-free-childcare scheme will replace the current childcare voucher system in Autumn next year (members of the existing scheme will be unaffected). But families where one parent does not work will not be able to join either scheme at that point. Even more of an incentive for them to sign up to the existing childcare voucher scheme while they can.

Child benefit trick

Childcare vouchers could also help you to avoid losing your child benefit – Child benefit is withdrawn gradually once one person in a household earns over £50,000. But if you reduce your taxable income below the threshold then you will retain your child benefit without extra Income tax payments. Childcare vouchers can be used to do this and then the child benefit can be used to help fund childcare as well!

Further reading

• How to cut childcare costs by £1,866 a year - Money tip #195
• New childcare voucher scheme explained
• New £1,200 childcare tax break vs existing voucher scheme - winners & losers
• Changing jobs could cost you your childcare vouchers - Money tip #146
• Child Benefit changes explained

(image by marin, freedigitalphotos.net)