The cost of childcare can eat up a large chunk of the family budget. The government can support you with your childcare costs in many ways – from tax credits and tax-free childcare scheme to funded hours per week. However, with so many available options and restrictions, it is no wonder more than half of new parents are confused about what they are eligible for and how to claim it.
All your costs explained
Broadly speaking, we can split all available childcare support into two large groups.
Group one, and we will call it Early Years Funding, is where the government buys or ‘funds’ your child some hours with the local childcare provider of your choice. The government gives money to the local authority and the LA passes it to your provider. In return, you, as a parent get a set number of hours per week.
Group two, and we can call it Financial Assistance, is where the government pays directly into your account towards childcare fees. Now you are responsible to pay your provider for the services provided.
If only it was that simple. Let’s dive in…
Otherwise known as ‘free’ early years education, 15 funded hours per week, early education entitlement for all 3 to 4-year olds, 30 hours of childcare, funding for 2-year olds and so on. This is where you claim hours, not money.
Early Years Funding for 2 year olds
You may be entitled to 15 hours of flexible early education for up to 38 weeks per year if you are in receipt of the eligible benefits such as income support, universal credit, working tax credits and other benefits. The flexibility of the entitlement will depend on the childcare provider you choose and is subject to reasonable demands and the provider’s ability to offer it. It can mean different hours over different days but you must commit to the same weekly pattern of hours for the term. You can start claiming the funding the term after your child turns two.
Early Years Funding for 3 to 4 year olds
Universal Entitlement of 15 Funded Hours per Week
The term after your child turns three, you automatically qualify for 15 hours of universal entitlement. Please note, the Government funding of 15 hours only covers 38 weeks per year and if you want your child to attend the nursery all year round, the provide will have to reduce the amount of hour per week so they can stretch your 38 week annual entitlement to the number of week that the nursery operates, e.g. 51 (this is why it is called stretched funding). Once you choose your hourly sessions, the provider will apply for your funding from a local authority and you don’t need to do anything.
Extended Entitlement of 30 Funded Hours per Week
Unlike with 15 funded hours per week which is automatically allocated to all children the term after they turn three, the parent must meet the eligibility criteria to claim additional 15 hours per week. Again, the 30-hour childcare covers only 38 weeks per year and if you want your child to attend all year round, the provider will reduce the amount of hours per week to stretch them for longer.
You will need to give the provider an 11-digit code, your national insurance number and your child’s birth certificate so the provider to start the claiming process with the LA. You will also need to reconfirm your eligibility every three months directly on HMRC childcare portal.
Early Years Pupil Premium
The local authority passes the Early Years Pupil Premium (EYPP) to providers to support the disadvantaged children who meet the eligibility criterial. Children will qualify if they are 3 or 4 years old and are receiving government funded universal or extended entitlement, and their parents receive benefits that are normally used to access eligibility for free school meals.
Evidence shows that children from less advantaged backgrounds can start 19 months behind their peers but a good quality childcare can reduce this gap and have a significant benefit in terms of child’s development. On average, the EYPP is an additional £0.50 per hour per child. The EYPP funding helps the provider to offer a tailored staff training and resources to give your child a better start in life.
There are (too) many options, including tax-free childcare, tax credits and so one. This is where once you registered with a provider, the government will pay you directly to help towards childcare fees. We also included childcare vouchers here, as they are slowly being replaced by tax-free childcare scheme.
Who is it for? To be eligible for the Tax-free Childcare Scheme, you must be working (if you have a partner they must work too). If you work but your partner is unable to work because they are disabled or care for a disabled person, you are still eligible for the Tax-free Childcare Scheme. Usually both parents in a couple must work on an employed or self-employed basis and have an income of at least £120 per week.
How much help does it offer? The government contributes 20% of childcare costs, with the maximum help set at £2000 per year per child (or £4000 if the child is disabled). It’s called the Tax-free Childcare Scheme because 20% is the basic rate of income tax. It will work by parents paying money into an account with a childcare voucher provider, which the government then tops up. For example, if you put £80 into the account, the government will put in £20.
The conditions You won’t be able to use the Tax-free Childcare Scheme if you are receiving Tax Credits or Universal Credit. Parents cannot use both childcare vouchers and Tax-free Childcare.
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Child Tax Credits
Who is it for? Child Tax Credit is a benefit to help with the cost of raising a child. You might be able to get it if you’re over 16 and responsible for a child who is either under 16 or under 20 while in full-time education or training.
How much help does it offer? Up to £2,780 per year for each child. When you apply for Child Tax Credit, the Tax Credit Office will take into account your circumstances (and those of your partner) when deciding how much you’re entitled to. The amount you get also depends on your income, whether your child has a disability and how many children you have living with you.
The conditions You can’t claim Child Tax Credit if you are claiming Universal Credit.
Click here to find out more.
Who is it for? The current voucher scheme, or Employer Supported Childcare scheme, allows parents to sacrifice part of their salary in exchange for childcare vouchers – in effect, this means you are paying for part of your childcare tax-free.
How much help does it offer? If you are a basic tax-rate taxpayer, you can pay up to £55 a week, or £243 a month of childcare with vouchers. Maximum annual tax and NI saving is up to £930.
The conditions Your employer must be registered with a Childcare Voucher company. Neither you nor your partner can register at the same time for Tax-free Childcare and Childcare vouchers. The Childcare Vouchers scheme will close to new applicants in April 2018 and the Tax-free Childcare is set to replace it.
Click here to find out more.
Who is it for? You may be eligible for help with your learning costs if you are a full-time higher education student and have children under 15 (or under 17 if they have special educational needs). The grant does not have to be paid back and is paid on top of your other student finance.
How much help does it offer? You can get up to 85% of your childcare costs. The amount you’ll get depends on your household income, the costs of your childcare and the number of children who are dependent on you.
The conditions You must be eligible for student finance to apply for a Childcare Grant. Click here to find out more.