The cost of childcare has become a hot topic in recent years. Despite increasing demand, in March 2022 the number of childcare places available had little changed since August 2015. The government has attempted to address this in England with a somewhat bewildering array of schemes. Childcare policy is set separately in Scotland, Wales and Northern Ireland.
The latest approach to the problem was a trio of major childcare measures in the Budget:
- A three-stage expansion of the existing working parent childcare scheme:
- From April 2024, working parents of two-year-olds will be able to access 15 hours of free childcare a week for 38 weeks (or the equivalent of 570 hours a year).
- From September 2024, provision will be extended to working parents of children aged between nine months and two years.
- From September 2025, all eligible working parents of children aged between nine months and three years will be able to access 30 hours of free childcare a week (or the equivalent of 1,140 hours a year).
- The hourly funding rate that the government pays to childcare providers in England will be increased from September 2023 and again in 2024. The current rate has been blamed both for the shrinking number of childcare providers and for increasing fees paid by those parents who meet their own childcare costs.
- From April 2023, the maximum amount payable under Universal Credit (UC) towards childcare costs for one child will rise to £951 a month from the previously announced £646.35. For two or more children, the maximum payment increases from £1,108.04 to £1,630 a month. UC childcare payments will be made upfront if parents move into work or want to increase their hours. Do not forget, it is possible for a couple to have total income over £60,000 and still be entitled to UC.
One aspect the Chancellor has not changed in the rule that if either parent has “adjusted net income” of more than £100,000 a year, there is no entitlement to free childcare. The Institute of Fiscal Studies has calculated that this arbitrary threshold means that someone with adjusted net income of £100,000 and two children under three years of age would need a pay increase of at least £34,500 to be better off overall because of the instant loss of free childcare beyond an income of £100,000.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.