Marcy Madzikanda: On Tax free childcare.
Over the past couple of months I have signed up to the HMRC tax-free childcare scheme. I wanted to share my thoughts on this, and hope this is information you may not have heard before which will save you some money. We all like saving and when it comes to childcare that is virtually impossible right, however I spoke to quite a few friends and they had no idea what I was talking about. So thought this might help at least one person.
I say past couple of months because I first signed up in December and as an online service, in Beta mode (testing) it wouldn’t set up the account. I tried it again in January and followed instructions to request a mandatory review as I knew this is what I needed for my household. They thankfully responded quickly and our account was set up.
If you are paying for childcare in the U.K. you will understand the impact of that on your finances. Especially while the littles are in that 0-2 room. If they attend on a full-time basis that is a mortgage.
There is obviously a huge difference having children here vs ‘back home’ where family would step in with childcare or paying for someone to do so did not cost an arm and a leg.
I don’t know if it’s just the U.K. or merely being in a different society with different expectations however we do have family around us, and I initially thought I would get both grandmas to do a day a week of ‘free childcare, then we would only pay for two or three days depending on our work schedules, but the Mr said no to that option saying it was a big ask to expect that off them. (I may go into this in another post)
Back to the tax free childcare post, what was always communicated to me were childcare vouchers which in theory make sense in that, you sacrifice a portion of your wages (fixed amount) and you buy childcare vouchers tax free! But remember you ‘sacrifice’ a portion of your salary for this ‘benefit’.
In hindsight, I would have started doing this whilst still on maternity leave (enquire if you can start buying them when pregnant- I think this is possible) and they don’t expire. So when the your child starts nursery you have saved some of the money in advance. I think this is when they are most useful. Also if both parents can make use of them you potentially have more to use towards reducing the cost of childcare. (If that’s even possible)
I found only one other mum who had used the tax free option and talked it through with her and she found them so much better than the vouchers which she had used. The benefit here is that you don’t sacrifice your salary, you set up an account with HMRC, find your nursery / childminder and select them. You are given a reference number which you give to the provider. Then you pay in your invoice amount, and you immediately receive £2 for every £8 you pay into the account! I thought I would have to apply for it every few months but your account is topped up instantly.
I didn’t have to chase anyone for it. You then decide when you want to pay the childcare provider. You have the option to take out the money from HMRC or leave it. I have decided to leave it for next months childcare invoice meaning we get to pay significantly less next month. We will obviously get less back but going forward I think this works best for us. We can’t wait for the free childcare once she is older and our nursery accepts these. (A question to keep in mind if you are looking at nurseries)
I have kept this post super simple as I understood the process. If you need more information of this service, if it works for your household, if it may affect any benefits you receive, or tax credits etc. I’d suggest you go to the website and use the simple tools to work out what’s best for you. https://childcare-support.tax.service.gov.uk/
Forking out so much money for childcare does make the realities of trying for another child that much more deliberate. Can you afford it? Thinking about finances vs the desire to have another child, should the two even be uttered in the same sentence? I know what I think, would be interesting to find out what you think?
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