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Treasury unveils tax-free childcare scheme worth up to £1,200 per child

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A new ‘tax-free childcare’ scheme worth up to £1,200 per child will be phased in from autumn 2015 and will replace the existing system of employer-supported childcare (ESC), HM Treasury has announced.

The scheme will be open to lone parents who are in work and earning no more than £150,000 a year, and to couples where both parents work and neither of them earns over £150,000.

‘They will receive 20% – equivalent to the basic rate of tax – of their yearly childcare costs up to £6,000 per child,’ the Treasury said. ‘For a family with two children, the new offer will be worth more than double the amount of a single claim for ESC, and will be open to around five times as many families.’

Is this a tax relief?

‘The support available is set at 20%, which is equivalent to the basic rate of tax. This ensures that everyone gets the same level of support no matter what their marginal rate of tax is.’

Source: HM Treasury’s Tax-free childcare Q&A

The new scheme will not be open to those receiving support through tax credits or universal credit, which will replace tax credits and other benefits.

‘For parents who currently receive childcare support through tax credits and in due course universal credit, the government will increase childcare support to improve work incentives and ensure that it is worthwhile to work up to full-time hours for low and middle income parents,’ the Treasury said.

‘An additional £200m of support will be provided within universal credit, which is equivalent to covering 85% of childcare costs for households qualifying for the universal credit childcare element where the lone parent or both earners in a couple pay income tax.’

The government will consult on the detail of the new scheme shortly, including how employers ‘could continue to play a role in supporting their employees with childcare costs within the new system’. The Treasury has published a Tax-free childcare Q&A.