Parents are missing out on tax-free childcare

940_MW_P22_Per-Fin — Tax-free childcare: who really benefits?

The government's decision to scrap childcare vouchers is proving to have been a clever one. New figures show that ditching the old vouchers in favour of a tax-free childcare programme has saved it more than £750m in the first year.

"Take-up of the new scheme has been dire," notes Sam Brodbeck in The Sunday Telegraph. Just £32m was spent on tax-free childcare in 2018, compared to the £390m the government forecast the scheme would cost. By contrast, childcare vouchers set the government back £792m in the 2017/2018 tax year. Even if take- up of the new scheme improves it was mired in technical problems when first launched the government is likely to continue to save money.

"The government needs to prioritise the promotion of tax-free childcare to ensure that it reaches those parents who need help with costs," Becky O'Connor of insurer Royal London told The Daily Telegraph. "If it doesn't, the switch from vouchers to the new scheme begins to look like an exercise in increasing tax receipts and reducing government spending, rather than an effort to improve support for the expense of childcare."

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The change was intended to help the self-employed get state help with childcare costs for the first time. Working parents who earn at least the national minimum wage or living wage for 16 hours a week on average, but less than £100,000, can claim tax-free childcare (if you have a partner, these conditions must apply to both of you). Your children need to be under the age of 11, or 16 if they are disabled. If you are eligible, you get £2 back from the government for every £8 you spend on childcare. You can claim up to £500 every three months £2,000 a year for each of your children. Yet around 324,000 families aren't claiming the tax-free childcare they are entitled to, says the BBC.

And that isn't the only help you may be missing out on. Parents of three- and four-year-olds are entitled to 15 hours of free childcare a week in England. This rises to 30 hours a week if you and your partner are in work and each earn less than £100,000 but more than the national minimum wage or living wage for 16 hours a week on average. Yet half of eligible families don't claim the full 30 hours, says Royal London. Finally, although the childcare voucher scheme is closed to new applicants, if you already claim vouchers from your employer you can still receive them up to the value of £933 a year.

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.