Press Release: LITRG urges parents to understand their childcare support choices this summer

Published on 10 July 2019

School summer holidays bring the perennial headache for parents to find childcare cover. The good news is that they can get help with childcare costs. But LITRG says it is crucial that parents understand which of several government supported schemes is best for them because the consequences of getting it wrong can be costly.

The Government’s latest initiative to support people with the cost of childcare, the tax-free childcare (TFC) scheme, was opened to all qualifying families in February 2018.

TFC is a childcare support scheme that replaced for new claimants the tax relief associated with directly contracted childcare and childcare vouchers currently offered by employers.1 For each 80p that you pay into your childcare account, the Government will pay in 20p – up to a maximum of £500 (£1,000 if the child is disabled) per three month entitlement period.

Although take up of TFC is growing, just 125,000 families used it for 151,000 children in March 2019, according to HMRC. But this compares with 47,000 families for 58,000 children in March 2018.2

Parents are likely to see TFC being promoted as the summer holidays approach.

Head of LITRG team Victoria Todd said:

“It is welcome that the Government is promoting TFC because it is clear from the current take-up statistics that many potentially eligible families are missing out on the scheme’s valuable support. However, we are concerned about the risk that parents could mistakenly make themselves worse off if they claim TFC without understanding the implications for existing support and benefits.”

LITRG’s message to parents is that they cannot claim TFC as well as tax credits or universal credit. If they do submit a claim for TFC then their whole tax credits award (both child tax credit and working tax credit) will stop automatically. The same applies for universal credit.

Similarly, you cannot benefit under both TFC and childcare vouchers or directly-contracted childcare at the same time. The tax and National Insurance relief for childcare vouchers and directly-contracted childcare was withdrawn for new applicants from 4 October 2018. So anyone giving their employer notice to leave an existing scheme to claim TFC instead will have their vouchers or directly contracted childcare stopped and will not be able to re-join.

Victoria Todd continued:

“Whether to claim TFC instead of other forms of childcare support is complicated. This is especially the case now that universal credit full service has rolled out across the UK and as a result most people can no longer make brand new claims for tax credits and other benefits that universal credit replaces. If you currently claim tax credits and you make a claim for TFC, your tax credits will automatically end, but if you have made the wrong decision you are unlikely to be able to reclaim tax credits3 and instead may have to claim universal credit. This could be better or worse for you depending on your circumstances.

“We urge parents to make sure they understand their situation before making a decision, and seek welfare benefits advice if they need to.”

  1. The tax and NIC relief associated with childcare vouchers and directly-contracted childcare was closed to new joiners from 4 October 2018 due to the introduction of tax-free childcare. However, certain people who signed up before 4 October 2018 will be able to continue receiving the relief.
  2. Tax-free childcare Statistics, March 2019, GOV.UK. According to this 2017 impact assessment, it was expected that some 1.2 million families could be better off as a result of TFC.
  3. Universal credit is now available in all areas of the UK and it is no longer possible for most people to make a brand new tax credit claim. There are two exceptions to this general rule.
  4. LITRG’s guidance on childcare support can be found on our website. Government guidance on tax-free childcare can be found on GOV.UK, and further information on childcare costs generally can be found on Childcare Choices.

(10-07-2019)

Contact: Victoria Todd (please use form at Contact Us) or follow us on Twitter: @LITRGNews