In his 2013 Budget the Chancellor announced that the Government was proposing to provide support for families who were paying for childcare. It now appears that the system will go live in 2017. The following is an overview of the new system.
Childcare Payments Act 2014
The Act provides for HMRC to make 'top-up payments' in respect of qualifying childcare. A person is entitled to receive a top-up payment of 25% of a qualifying payment for an entitlement period in respect of a child if:
- the person is an eligible person for the entitlement period;
- the person has made a valid declaration of eligibility for the entitlement period;
- the child is a qualifying child;
- the person holds a childcare account in respect of the child; and
- a qualifying payment is made into the childcare account during the entitlement period.
A child is a 'qualifying child' until the last day of the week in which falls the 1 September following the child's eleventh birthday. The age is extended to 16 for a disabled child.
The legislation sets out the conditions for a person to be an eligible person as follows:
- they must be over 16;
- they must be responsible for the child in whose name the account is opened;
- they must be in the UK; ss6-13 CPA 2014
- they, and if relevant their partner, must be in qualifying paid work, broadly employment income (not benefits) and/or self-employed profit at or above 8 hours/week at NMW rates;
- they, and if relevant their partner, must not expect to pay income tax at the additional rate or dividend additional rate and must not be subject to the remittance basis for the relevant tax year;
- they, and if relevant their partner, must not be in receipt of universal credit;
- they, and if relevant their partner, must not be in a childcare voucher scheme or a childcare scheme that qualifies under s318A ITEPA 2003; and
- neither they, nor their partner, are receiving any other contributions to childcare from a national authority.
Method of payment of top-up
The parent will be required to set up a childcare account for each child with a designated provider, having previously obtained consent from HMRC to do so. They will be required to provide a declaration of eligibility to HMRC. Any person can contribute into the account.
Payments made into the account will receive a top up payment each quarter from HMRC. The payments must not exceed £2,000 each quarter and the maximum HMRC top-up will be £500 per quarter. The limits are £4,000 and £1,000 respectively where the child is disabled.
The childcare account will only be able to be accessed to make payments for qualifying childcare for the child in whose name the account is held or to make a withdrawal by the account holder.
In the latter situation the account provider must repay the corresponding top-up payment back to HMRC.
This system is very different to the voucher system which many employers provide and both employers and employees will wish to consider their position once the new system is up and running. One of the big differences is that there are tax breaks attached to the new system as there has been for vouchers.