Childcare Benefit Changes – The Good and the Bad
Following the Chancellor’s Budget announcements, there will be some changes to childcare benefit and depending on your personal circumstance, this could be a blessing or a curse. Parents will get up to 30 hours of free childcare per week for any child older than nine months from 2024. This will commence with a staggered introduction of 15 hours in April 2024, increasing to 30 hours in September 2025. While this will be a welcome boost for struggling parents, it will be a unwelcome snag for higher paid earners.
The government’s hourly funding rate for children aged two is £5.83, potentially saving parents £6646 per year on childcare – However this could be less, depending on where in the UK they live. Should parents face any shortfalls for childcare, they will have to pay out of their own pocket.
Free childcare only runs during term-time, so any additional childcare fees would need to be paid for by the parents. However, there is an offer for an additional £2000 of tax-free childcare to those who are eligible.
Free Care Scheme Extension
The 30-hours of free care scheme has been extended to allow two children of pre-school age to get access to free childcare under the Budget announcements, which in London could mean an annual saving of around £23,300 for parents.
With the additional £2000 of tax-free care per child and the amount saved rises to £27,300. Beware, once income reaches £100,000 per year, all of these benefits are lost and you will have to pay all of the childcare fees out of your own pocket.
What can you do?
The £100,000 threshold is your income minus any pension contributions you make, so you can move any additional income into your pension to take you back under the £100,000 income threshold.
This stems following the Chancellor’s Budget announcements, where pensions got a significant overhaul to make retirement saving more appealing. The Annual Allowance has been increased and the Lifetime Allowance has been effectively removed. Additionally, the Money Purchase Annual Allowance and the Tapered Annual Allowance have also been increased.
Read more here: A Significant Overhaul for Pensions (pi-accountancy.co.uk)
How we can help
If you think your income will exceed the £100,000 threshold and you need the benefits from the additional free childcare, don’t hesitate to get in contact with us and we will support you with your finances: Pi Accountancy | Expert Business Advice | Gloucester & Swindon (pi-accountancy.co.uk)