Money & Daddy is a weekly column about parental finances, published on Wednesday mornings. Got a topic or problem you want me to tackle? Email me: firstname.lastname@example.org
I can’t be the only one who’s stockpiled something that almost immediately became surplus to requirements. In our house, it’s tins of chopped tomatoes.
As the clock counts down before the Ocado basket is locked for delivery, someone always shouts: “Tomatoes! Get tomatoes – we’re getting through about three tins an hour!” Now we’ve so many tomatoes they’ve had to be moved to the garage. When this is over, we’re going to have one hell of a ratatouille party.
The continued closure of nurseries means that hundreds of thousands of us are unwittingly stockpiling something even more useful: cash.
On average, parents have £83.75 languishing in their tax-free childcare (TFC) accounts, earning no interest and certainly not paying for any childcare, according to a new Freedom of Information request. That doesn’t sound a lot – but across the country the total is approaching £19m. Just imagine the soft-play mecca we could fund with that.
Becky O’Connor, of Royal London, said it was likely that during lockdown the unused balance is even higher than normal.
“Parents need to remember to make sure they are not putting more in than they need to, as it can sit there for months unnecessarily boosting the Government’s coffers rather than their own,” she advised.
What are tax-free childcare accounts?
I realise though that many of you will be more interested in the very existence of these childcare accounts. We operate a strict “no shaming” culture here at Money & Daddy, so they’ll be no scolding of those who don’t know they can get £2,000 of free government cash per year to put towards childcare costs. That’s equal to £22,000 per child if you claimed the maximum for 11 years
Although the number of parents using the scheme has recently jumped – to around 220,000 at the last count – it was plagued with problems when it launched. Consequently, many gave up trying to navigate the bug-ridden online system, while others just never heard of it thanks to the Government’s uncanny ability to not properly promote schemes where it pays you, rather than the other way around.
Thankfully, the bugs seems to have been chased away and the accounts disinfected. But setting up an account in the first place remains a long and tedious task. You’ll need a “Government Gateway ID”, which you can acquire at the same time as applying for the childcare account (start here and have your National Insurance number and salary details handy).
Once you’ve got it, the ID is genuinely useful for any future interactions with the dark forces of the state (think tax return deadline). Top tip: ignore security advice and WRITE THIS NUMBER DOWN. You will need it constantly and it’s so long you’ve no hope of memorising it unless you’re Rain Man.
How much do you get?
For every £8 a parent pays into their account the Government will add an extra £2, up to a maximum of £2,000 per child per year. For disabled children the maximum is £4,000 per year. The top-up is paid up to £500 for every three-month period, so you’ll need to make sure you have enough in the account to receive the maximum.
The payments stop on 1 September after your child’s 11th birthday (or 17 if they’re disabled). Adopted children are also eligible, but not if they’re fostered.
What can you spend the money on?
Once the money has been credited (make sure to use the correct reference number on your card payment or bank transfer) you can pay childminders, nurseries, nannies, after-school clubs, play schemes and home care agencies directly through the account.
However, whoever you pay must be signed up to the scheme, too (they can do so here). You can pay for multiple providers through the account, including HM Revenue & Customs if you employ a nanny and need to pay a related tax bill.
Is everyone eligible?
Most are – but not if either parent earns more than £100,000 a year. As with child benefit, this is another example where the Government judges us as individuals, not as couples. So a couple with household income of £199,998 a year (but neither earning more than £100,000) gets the full amount, but a couple with £100,000 (where one is a stay-at-home parent) gets nothing. There is a lower earnings limit, too – full details here.
Can you swap childcare vouchers, for tax-free cash?
Yes, but you can’t switch back. In a future column I’ll explain when this is a good, and a bad, idea.
Have you had any problems with tax-free childcare? Let me know: email@example.com