Childcare plan delay to cost families £3,000

MILLIONS of parents will miss out on up to £ 3,000 of free childcare after a legal dispute scuppered the launch of a flagship Government scheme.

The new tax-free plan to give 20p towards every £1 of nursery fees, capped at £2,000 a year for working parents, was due to begin in September.

But last week a legal spat over who should run the scheme meant the rollout was put off until early 2017.

This means nearly two million families who would otherwise have been able to benefit will miss out on 18 months’ of savings worth up to £3,000.

Ellen Broome, director at campaign group Family and Childcare Trust, says: ‘There will be a lot of parents left very disappointed by the delay.

‘ This leaves them without extra financial support for childcare costs until 2017.’

Many working parents with children are struggling with hefty bills for nursery care and childminders.

The average cost of keeping a two- year- old in full- time nursery education is now £918 a month or £11,016 a year, according to the Family and Childcare Trust.

In London, this can rise to £14,400 annually.

The new childcare tax break was designed to replace the existing system where parents claim vouchers through their employer.

About 500,000 families use these vouchers, which allow each parent to pay for childcare worth up to £243 a month.

The perk comes in the form of tax relief — as every £243 voucher only costs the parent £165.24.

For higher-rate taxpayers who qualify for a maximum £124 of vouchers, the cost is £71.92. For top-rate taxpayers, a £110 monthly voucher limit will cost them £58.30.

Each parent can sign up to the voucher scheme ( as long as their employer offers it). In total, two parents who are both basic-rate taxpayers can save £ 1,866 a year on childcare costs.

Parents won’t be able to sign up to both schemes when the new one comes in. And if they’re in the old one, they don’t have to switch over. Once you’ve moved to the new one, though, you won’t be able to move back again.

Estimates from the Treasury show some 250,000 households could be worse off if they leave their current work scheme.

With the new plan the Government will top up every 80p you spend on childcare with 20p — up to a maximum of £2,000.

To be eligible for it, you need to earn less than £150,000 a year and not be claiming tax credits or universal credit.

Parents need to decide now which is better for them because once the new one comes in, no new parents will be able to sign up for vouchers. For the richest parents, the old scheme is going to be best. But for those on low incomes, it’s likely the new one will work out better.

Jo Dalby, director at Busy Bees voucher company, says: ‘Whether you’ll be better off depends on how much childcare you have, and how much you earn.

‘But as a rule of thumb, middleincome earners with steeper child costs will be better off by switching to the new State scheme. Either way, it’ll be worth registering for your work scheme if they have one to at least have the choice.’

Deciding which scheme works best for you will involve checking your tax band and totting up exactly how much childcare you require in a year. Remember, childcare vouchers offered by employers can also be used for summer holiday clubs and several other Ofsted-registered schemes.

There is another wrinkle. Higherrate taxpayers who signed up for vouchers before 2011 can get the same tax break as basic rate taxpayers — £1,866 a year for a couple.

As a rough guide, lower earners needing part-time care will likely be better off sticking with their existing scheme. This is because they could claim the full tax break all at once, rather than just 20p in every £1 they pay.

At the other end, the very richest, earning more than £150,000, will be better off in the old system.

But to further muddy the waters, families with children approaching their third birthday will also need to factor in entitlement to up to 15 hours (and from next year 30 hours) free childcare.

However, private nurseries charge more than the minimum amount offered by the Government, so you’ll need to pay extra through a childcare scheme.

Anthony Thomas, chairman of the Low Incomes Tax Reform Group, says: ‘Many people are going to face difficult and complex decisions in trying to decide whether to join the new Government scheme or stay with their existing childcare support through tax credits, universal credit or childcare vouchers.’

‘Under the rules as they stand, detailed guidance will be essential. But that guidance will have to be long and complex if it is to deal with all personal and financial circumstances.’