Helping working parents save money on their childcare costs

Childcare costs are one of the highest for parents. Research from the Centre of Economic and Business Research has revealed that the cost of raising a child from birth till the age of 21 has reached an astounding £230,000! Childcare costs and babysitting accounts for £67,500 of the total amount. Statistics like these are putting pressure on the Government to provide viable initiatives that will reduce the burden of childcare costs on working parents. The Government are commited to increasing female employment and to help parents return back to work after having children. We will analyse the Government schemes available and assess which schemes are better for which families.

What help is available?

Childcare Vouchers:
The Government currently offer a Childcare Voucher scheme. They are a long-established employee benefit available to help make childcare more affordable for working parents. Used by more than 500,000 parents in the UK, Childcare Vouchers are a key tool to help parents back into work after having children as they provide savings of up to £933 per parent, each year.

Childcare Vouchers are operated through a salary sacrifice scheme,where a portion of the employee’s salary is deducted in exchange for childcare vouchers. The savings are created because the sacrificed amount is non-taxable and exempt from National Insurance contributions. Vouchers are then placed into an online account to enable quick and easy payments to childcare providers

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Tax-free Childcare Scheme:

In the autumn, the Government are introducing a new Tax-free Childcare scheme. Tax-free childcare will see the government subsidising 20% of a child’s childcare fees on costs of up to £10,000, providing savings of up to £2,000 per child, each year. Under this scheme, for every 80p spent on childcare, the Government will add 20p. Unlike Childcare Vouchers,
Tax-free Childcare is not operated through employers. Parents administer the scheme themselves.

Working Families Tax Credits:
Working Families Tax Credits is a Government scheme designed to help parents on low incomes with their childcare costs. To qualify for these a parent will need to work at least 16 hours a week. Parents who are applicable for Working Tax Credits can get up to 70% of their weekly childcare costs covered by this scheme.

The maximum weekly childcare cost a parent of one child can claim for is £175 a week. The maximum weekly childcare cost a parent of two or more children can claim for is £300 a week. So if a parent with one child claimed for the maximum weekly limit, they will get help with £122.50 of their weekly childcare cost. If a parent with two or more children claimed for the maximum weekly limit, they will get help with £210 of their weekly childcare cost. The amount you can claim for depends on the hours you work and your income level.

 

Working Families Tax Credits will be replaced by Universal Credit. Universal Credit is a new simpler, single monthly payment for people in or out of work, which merges together some of the benefits and tax credits that they might be getting now.

Free Entitlement:
In addition, all 3 and 4 year olds are entitled to 15 hours of free early education/childcare a week for 38 weeks of the year. Parents can start using Free Entitlement after their child turns 3. The specific date it starts will depend on the child’s birthday.

2 year olds who come from less advantaged backgrounds are also eligible for 15 hours a week free early education/childcare. Parents that would qualify for this in include those who receive income support and income-based Jobseeker’s Allowance.

Which scheme is better for me?
There are key differences between Childcare Vouchers and Tax-free Childcare. Tax-free Childcare is available for children up to the age of 12. Families where one parent works will not be eligible for Tax-free Childcare. In contrast, Childcare Vouchers can be used for children up to the age of 15, (16 if disabled) and families where one parent works are eligible.

This is not the only major difference. To access the maximum savings on Tax-free Childcare, parents will need to spend £8,000 on Childcare per year. To access the maximum savings on Childcare Vouchers, parents will only need to spend £2,916 per year on Childcare.

Therefore, under the new scheme, many parents will be worse off, including middle-low earning parents, families with only one working parent, families using childcare for only a few days a week and those who have children in childcare over the age of 12. Childcare Vouchers are therefore the answer. Childcare Vouchers can be used by both working parents, thus doubling the savings.

Here is a table illustrating which families are better off on Childcare Vouchers and Tax-free Childcare.

TableMaximise your choice

Childcare Vouchers will remain in existence for as long as they are required, although only for those already using them. Once the new Tax-free Childcare scheme has launched, no parents can join a Childcare Voucher scheme. If you want to maximise your choice, you should sign up to a scheme now. As stated above, many families will be better off on Childcare Vouchers.

However, even if you will be better off using Tax-free Childcare, you could save a maximum of £544* using Childcare Vouchers before the new scheme is launched. Once on a scheme, parents can start accumulating Childcare Vouchers for as little as £10 per month, even if they are not needed until a future date. Saved up vouchers can still be used even if parents choose Tax-free Childcare.

If you leave a Childcare Voucher scheme, you cannot join again if the Tax-free Childcare scheme has begun. Parents who have children that will leave childcare soon should consider whether it is best for them to leave the Childcare Voucher scheme. If these parents intend to use childcare in the next few years, even if it’s only sporadically, they should stay on the scheme and retain their right to choose. It is also in your best interest to stay on the scheme if you are planning on having more children. Sign up to a scheme and protect your future savings.

 

How do I register to a scheme?

To start using Childcare Vouchers, you will need to join your employers Childcare Voucher scheme. Check with your HR department to see if your employer runs a scheme. Once registered to your employer’s scheme, you can have a deduction from your wages the next time you get paid.

All parents using Busy Bees Benefits vouchers in a Busy Bees nursery will receive an additional 5% credit on top of their voucher values. Busy Bees nurseries are the largest childcare provider in the UK, operating over 230 nurseries in the UK and 60 settings in South-East Asia. Parents that use a Busy Bees nursery and claim £243 a month in Childcare Vouchers, would receive an additional £145 towards their childcare.

If your employer does not offer a Childcare Voucher scheme, please contact Busy Bees Benefits on 0330 333 9100 or parent@busybeesbenefits.com. For more information about Childcare Vouchers, please visit www.busybeesbenefits.com/childcare.

 

* Based on 7 months deductions (February- August)

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