Parents urged to be cautious before applying for tax-free childcare

Anne Fairpo, chair of the Low Incomes Tax Reform Group (LITRG) is urging parents and carers to check their position before applying for tax-free childcare as they may find other benefits they currently receive are stopped or that other childcare schemes can offer more financial support

The roll-out of tax-free childcare is now complete. Although many will benefit from the scheme, it does add a further layer of complexity to the already complicated childcare landscape.

LITRG is fully supportive of the help provided by the tax-free childcare scheme to working parents looking for reliable, high quality, affordable childcare but when set alongside existing childcare offerings, the childcare landscape that results is incredibly complex for very many people.

If an existing tax credit claimant makes a claim for tax-free childcare, even if they do not claim any help with childcare costs through tax credits, their whole tax credit claim will be automatically terminated. If they live in an area where universal credit full service has rolled-out they may find that they are not able to claim tax credits again and this is very confusing.

Someone is not entitled to tax-free childcare if they claim tax credits (any tax credits, not just childcare support) or universal credit. They also cannot receive childcare vouchers or directly-contracted childcare via their employer at the same time as receiving help through the tax-free childcare scheme. This means that people thinking of applying for tax-free childcare need to ensure that it is the right scheme for them before claiming, which involves a series of complex calculations.

For some people, who do not currently receive any government benefits or childcare support, the choice to apply for tax-free childcare will be an easy one. However, those on lower incomes who claim tax credits or universal credit or who get help with their childcare costs through their employer need to ensure they seek good advice to make sure that tax-free childcare is the right choice for them when compared to the other options. Those new to paying childcare will need to work out carefully which scheme will provide them with the most financial support.

At present, I do not think there is anything like enough clear guidance and support to help people fully understand the rules and conditions of each scheme and to understand how the schemes interact and which one will be most financially beneficial.

It is crucial that the government do more to support parents and carers with these difficult decisions. As well as more guidance, I would like to see an extension of the childcare helpline to provide specialist, trained staff who can help with better-off calculations otherwise there is a risk that decisions will be made that leave people financially worse off and in some cases may be irreversible.

About the author

Anne Fairpo is chair of the Low Incomes Tax Reform Group (LITRG)

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