Bringing up children has never been inexpensive; however, amongst the cost-of-living crisis many parents and carers will be feeling the squeeze.
At Burton Sweet, we know that providing for your family may well be one of your key motivations.
Therefore, we have written about possible sources of support for you to read and consider…
Tax-free childcare account
You may be able to access the government’s tax-free childcare accounts, which provides a 25% subsidy towards the cost of childcare. This account can be used to pay nursery fees, breakfast clubs, after school clubs and registered childminders.
The scheme operates by topping up savings of up to £8,000 per child by 25%. This could potentially mean an extra £2,000 a year to spend on qualifying childcare.
The scheme generally applies to children under 12. For disabled children, the age limit is 16 and the amount that can be saved is £16,000 a year, topped up by the Government by a further 25% to potentially £20,000.
Unlike childcare vouchers, provided by some employers, tax-free childcare accounts are available to both employees and the self-employed. To be eligible, the parent generally needs to be working and earning at least the National Minimum Wage or National Living Wage for at least 16 hours a week on average. However, parents are not eligible if either of their adjusted net income is more than £100,000 a year.
Where an employer provides childcare vouchers then the parents are not allowed to set up a tax-free childcare account as well. However, the voucher scheme applies to children up to age 16, rather than age 12. If you would like to talk to someone about which option would be more beneficial to you, then please get in touch with us…
High Income Child Benefit Charge
Parents and carers need to be aware that if either of the couple have adjusted net income in excess of £50,000 then the partner with the higher income will potentially be taxed on some, or all, of the child benefit. Additionally, they will need to request a self-assessment tax return to report the amount of child benefit received in the tax year, even though people who pay their tax under PAYE are not normally required to do this.
Adjusted net income is an individual’s total taxable income before any allowances, but after deducting Gift Aid, pension contributions, and trade union subscriptions.
The High Income Child Benefit Charge (HICBC) imposes a 1% charge on the amount of child benefit received for every £100 that the taxpayer’s adjusted net income exceeds £50,000. Where the adjusted net income is £60,000 or more, then 100% of the child benefit is charged, effectively fully clawing back the child benefit.
Note that the £50,000 threshold has not been increased since the HICBC was introduced in 2012. This means that an increasing number of parents are being affected each year. Recently, it has been announced that in future years the government plans to deduct HICBC directly from salaries via PAYE.
You can opt out of receiving child benefit payments where adjusted net income exceeds £60,000. Consequently, the HICBC would not apply and the child benefit would not need to be reported on the tax return. That may mean that a taxpayer who has their tax collected under PAYE would not be required to submit a self-assessment tax return. It’s still important to fill in the child benefit claim form but state that you do not want these payments. This is important, as the claimant would then receive National Insurance credits for that year, which count towards their State Pension entitlement.
HMRC have started assessing taxpayers to HICBC where they have not reported their child benefit in earlier years. Be aware.
Some parents may be eligible for, and receive, Child Tax Credit. However, Universal Credit has now replaced Child Tax Credit. Universal Credit is available to those on lower income and offers some financial support to families.
There are different eligibility criteria for Universal Credit. To check your eligibility, you can use a benefits calculator.
If you require any guidance on any of the topics, please get in touch with us and a member of our team will be happy to assist you.