Tax-Free Childcare from HMRC

HMRC-Tax-Free-Childcare1.1Having previously written about Tax Free Childcare it seems it is now finally coming into being, a year late, after an unsuccessful court case by a Childcare Voucher company had caused a delay. And let’s be clear, tax-free childcare is about as free of tax as the 15 funded hours is free for providers, but it is the government’s new financial childcare support mechanism for parents which will essentially make the current Childcare Voucher systems in place extinct as no new parents can join these once the childcare accounts go live.

In brief the new Childcare Accounts involve parents (and relatives) paying in a sum of money (maximum £8000 per year) and the government will add 20% (£2000) – which is coincidentally the basic rate of tax. But this is a close as it gets to being ‘tax-free’ as it clearly sits outside of the tax system. HMRC will ‘qualify’ parents every quarter and only pay in at a rate of £500 per quarter.  Parents then pay providers from their ‘pot’ directly. Hence the need for childcare providers to be registered with HMRC in order to be able to take part in the scheme. Although the choice is yours as registration is voluntary.

Which brings me to the email from GOV.UK which many received on Friday, confusingly titled ‘A new childcare offer is coming – get ready! ‘ and whilst it referred to the extended entitlement and Universal Credit, I suspect as part of the propaganda machine, it was in fact about these Tax-free Childcare accounts.

Interestingly, I was only speaking with HMRC about the whole process (TFCC to them) just a couple of weeks ago, because I have for some time had concerns about what the impact of this on us, as providers, would be and they have kindly kept in touch with me. My main concern has been how the system will identify to us who the payment is for. If you were in this business when Childcare Vouchers were first introduced you may well remember the fiasco we had with some companies to match up payments. As HMRC have decided to choose a company (NS&I) who has no experience of the Childcare Voucher markets I am expecting a similar disaster and had expressed this in no uncertain terms to those developing the system.

So what have I learned and what are our next steps?

  • What seems to be a functional reference system for being able to match parent payments into the bank to children seems to have been developed. It’s not finalised, its better than any of their other suggestions, although I can’t tell you what it is as yet as it has to be piloted first. I would say though, they have at least considered the problem from our perspective and reacted to it.
  • The GOV.UK email is the beginning of the process to keep us informed about what will happen next. If you received it then they have your correct email. If you’ve received a new certificate from Ofsted (remember that whole re-registration process for the Small Business & Enterprise Act?), then they have your correct address details. HMRC will be using this information from Ofsted (our regulator) to send us further information, so if any of it is wrong, you will not be included.
  • You have to register with them not the other way around. Essentially you will be sent a User ID from HMRC and with this and your Unique Taxpayer Reference (UTR) you can register online.
  • They will be producing some Partnership Material which will advertise and explain things further.
  • The roll-out to providers will be from September to November with a start date for parents planned from 2017.

As I have said before, what a brilliant idea it would be, to reduce tax credit childcare fraud, to also pay the Universal Credits into this account, but no specific news on that yet. And I have also muted that the extended entitlement may also be given direct to parents through this pot in some way – which brings me back to the headlines in the email – a coincidence that these three things have been brought together in this way? Who knows? We will have to wait and see I guess.

As to which system is best for parents, that is up to them to decide. Make sure you sign up below or log in to get our thought provoking Parent Leaflet can be downloaded for free and given out to parents. Other  useful resources are also available such as this one from a childcare voucher company or view their comparisons.

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About the author: Tricia Wellings

Tricia Wellings EYNFF Early Years National Funding Formula Analysis
Tricia qualified as an NNEB and achieved a BA (Hons) in Early Education Studies and Early Years Teacher Status. She obtained her PTLLS and CTTLS in order to teach adults and most recently her A1 assessors award. She has run a group of day nurseries for 18 years and trains her own teams.

Her passion for and knowledge of owning and running a nursery group and the issues within the sector that affect them is second to none. She continues to keep herself updated through regular meetings with PVI groups, Local Authorities, Ofsted Big Conversation and Conferences.

You can find our more about Tricia on her website www.triciawellings.co.uk

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