Middle-income families could miss out under childcare plans, warns expert

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Middle-income families could lose out under Government plans that will see the highest and lowest earners better off, a financial services firm has warned.

Busy Bees Benefits says that the Government’s Tax-free Childcare scheme, due to be launched in the autumn, will subsidise 20 per cent of a child’s childcare costs, but will mainly benefit high earners with high childcare costs. Meanwhile, low-income parents will still be able to get Working Tax Credits to help with their childcare.

John Woodward, Busy Bees Benefits CEO, said most middle-income families would be better off using childcare vouchers.

“The main issue with Tax-free Childcare is that parents are reading about savings of £2,000 per child each year. But in reality, many don’t realise that they would actually only get the maximum saving if their childcare costs are over £10,000 per child each year,” he said.

The average annual cost for a two-year-old going to nursery for 25 hours per week is £6,000.

Mr Woodward said that assessing likely future childcare requirements and costs is something parents should do now – before the Government increases free childcare to 30 hours for all three and four-year-olds by 2017.

Those using childcare vouchers will be able to choose which scheme is best for them from the autumn. If their circumstances change, they will be able to opt for Tax-free Childcare, but they will not be able to switch back. Those who do not get on a childcare voucher scheme before the autumn will only be able to use Tax-free Childcare, so parents are being urged to join their employer’s childcare voucher scheme now as Tax-free Childcare will see the closure of the current scheme.

Mr Woodward added that businesses should also take heed: “With the current childcare voucher scheme, employers can save up to £402 per parent on their scheme each year; the more they have using childcare vouchers, the more they save in employers’ NI contributions.”