Martin Lewis flags ‘hideously misnamed’ discount parents are missing to save on childcare

By Staff

Martin Lewis has alerted parents about a way to save lots of money on childcare in his latest weekly email, though he has warned that the discount is ‘hideously misnamed’. The Money Saving Expert is talking about Tax-Free Childcare, a government scheme which offers up to £2,000 a year per child towards childcare costs.

But according to the Money Saving Expert team, around 1.3 million families are eligible for the funding, but more than half aren’t using the benefit. However, this is partly due to the confusing name the government have given the discount.

Martin Lewis himself said: “Calling the scheme ‘Tax Free Childcare’ was a political spin to ensure government gets credit for the scheme. Unfortunately the name is appallingly confusing and misleading, and probably partly responsible for the scheme having a much lower take up than it should have.”

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Tax-Free Childcare is actually a savings scheme, Martin explained, where you save and then are given a 20 percent top up when you pay for childcare. It’s actually nothing to do with tax, he added, and isn’t linked to the tax rate you pay either.

For every 80p you put into your Tax-Free Childcare account, the state will add 20p. Eligible parents can get up to £2,000 per child per year. In total you can use the scheme to help pay for up to £10,000 of childcare per child each year.

You open an online Tax-Free Childcare account using your Government Gateway ID and for every 80p you pay in, the Government will top up your account. However, there is a £500 quarterly cap to the government top-up, meaning you can only get the maximum top up every three months.

It’s open to all parents in employment, including those who are self-employed. If you’re single, you have to be in work; if you’re in a couple, you both have to be employed, or self-employed, to qualify. However, if one of you are on sick leave, annual leave, on parental leave and have a Tax-Free Childcare account for another child, or one of you is in work and your partner receives certain benefits, you can still qualify.

The scheme is accessible to parents each earning below £100,000 a year, but have to receive at least national minimum wage for your age group or higher. It’s important to note that the savings scheme is only available for parents of children up to the age of 11.

You will be eligible for the childcare funding if you can’t get any other state help, such as up to 30 hours of government-funded childcare for three to four-year-olds. The Money Saving Expert team also recommend checking to see if you do qualify for benefits, which you can do here.

If you are eligible for Universal Credit, and you’re in work, you can claim back up to 85 percent of the amount you spend on childcare. You can get up to a maximum of £951 for one child and £1,630 for two (or more) children.

Tax-Free Childcare doesn’t just cover nursery costs, it can also cover holiday activities, including tennis, football, art clubs and more. It can also be used to pay for nannies, au-pairs, childminders and playgroups.

If you’re eligible, you’ll need to create an online childcare account via the Government Tax-Free Childcare site. It should take about 20 minutes to set up, and you’ll need your national insurance number.

You can pay money into the account by setting up a standing order, or by making a payment from your bank account using your debit card. Other people can also pay into the account too. The government will top the account up with the extra cash on the same day you pay your own money in.

You must reconfirm you’re eligible for the Tax-Free Childcare support every three months – but don’t worry, you’ll be reminded to do it with plenty of time. It’s worth doing, as if you don’t reconfirm by your deadline, and your childcare bill is due, you’ll have to pay the amount in full without the 20 percent top-up from the state.

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