New tax relief on childcare – could you save £1,200 per child?

Added by Jon Davies

The government today announced the first details of a new tax relief on childcare. The scheme will start in autumn 2015 for children under 5 years old, and later be extended to children under 12.

This could be worth up to £1,200 per child – you’ll be able to claim basic rate (20%) tax relief on a maximum of £6,000 of childcare per child each year.

This means that, for every 80p that you pay for OFSTED registered childcare, the government will contribute 20p.

The scheme will replace the current childcare voucher scheme.

Are you eligible?

You’ll be able to claim this if:

• You have children under 5 years old (this will rise to 12 years old at a later date)
• Both parents earn less than £150,000 per annum each

Is it good news or bad news?

It depends. It is probably good news if:

• You have a large family as you can claim for every child. The current childcare vouchers are capped per adult, not per child.
• You are self-employed as you weren’t eligible for childcare vouchers before.

However, it is probably bad news if:

• One of the parents doesn’t work – you’re only eligible if both parents work, so there’ll be no tax relief otherwise. Currently, the working parent can get tax relief on the childcare vouchers.
• You’re a higher rate tax payer who has used childcare vouchers since before 5 April 2011 – you could be saving £1,225 in tax per annum at the moment without needing to spend £6,000, but this will drop.
• You earn over £150,000 – you could be saving £1,516 at the moment but will no longer be eligible.

What next?

More details will be announced over the coming months, so we’ll keep you updated.

Any questions?

You can contact us on 0845 177 5007 or by email at [email protected] Alternatively, you can use the MJF Accountancy contact form.

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