For a number of years now HM Revenue and Customs have tinkered with various initiatives to provide tax relief for the childcare costs incurred by families. For working parents, the relief available can be a valuable increase to their take home pay.
The Government is launching a new tax-free childcare scheme, now scheduled to be introduced early 2017. The new scheme will eventually replace the existing relief for employer supported childcare and childcare vouchers, which will be phased out.
The plan is to introduce the scheme to those parents with the youngest children first and gradually phase it in so that all eligible families can benefit by the end of 2017.
Currently, relief for childcare costs can only be obtained through the employer who can provide employer-supported childcare or childcare vouchers. Thus, with the current system, the burden is on the employer and at their discretion as to whether they offer a scheme to employees hence not all families benefit. The amount of tax relief given has changed over the years and depends when a scheme was joined. Employers may also offer a salary sacrifice scheme which can be beneficial for both employer and employee.
The new scheme will be rolled out throughout 2017 with full implementation by the end of next year. However, to ease the transition, existing schemes will remain open to new participants until April 2018. Parents will have the choice of whether to continue with the existing scheme until it closes or move to the new scheme.
Whether it is worth making the switch will depend on individual circumstances and the taxpayer’s marginal rate of tax. It will be necessary to do the sums to ensure the maximum amount of tax relief is obtained.
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