Temporary Changes to Tax-Free Childcare (TFC). In light of COVID-19, the government has introduced temporary changes that may affect individuals applying for - or already receiving - Tax-Free Childcare and/or 30 hours of free childcare.
What is Tax-Free Childcare?
Well, it isn’t completely tax-free childcare, it’s a 20% tax-free bonus to help with childcare costs. Working parents can open a TFC account which is topped up by £2 for every £8 contributed, up to a maximum of £2,000 per child, per year. The money is then used to pay a registered childcare provider. Those earning more than £100,000 are not eligible for the scheme.
Due to the coronavirus pandemic, many people are facing a reduction in their incomes. Critical workers, on the other hand, may have a higher income this year if they are working more hours. This means that many people could miss out on TFC when they need it most.
What is the government doing about it?
The government has announced that those whose earnings fall below the minimum-earnings requirement for TFC but who would expect, under normal circumstances, to earn enough to qualify, can access this scheme.
Parents who usually meet the TFC criteria but are who are having to take time off for illness, to self-isolate, or to care for someone else are also eligible.
In addition, critical workers who exceed the maximum income threshold of £100,000 per year because of increased hours as a direct result of coronavirus, are eligible for 30 hours of free childcare and TFC for the current tax year.
Is anything else affected?
If the reduction in income for 2020/21 could temporarily take parents’ income below £50,000, it may be possible to reinstate Child Benefit, which has been restricted for higher earners since 2013/14.
Should you require further guidance, do please get in touch. We will be pleased to discuss the way forward on these or other issues.