What does the UK’s enhanced childcare policy 2023 mean for parents?

/ Posted By - Bradleys Accountants / Categories - Advice for Small Businesses

As a daycare business owner, staying up-to-date with the latest developments in childcare policy, particularly those that impact your clients directly, is essential.

The UK government announced new childcare changes in 2023 that would provide up to 30 hours of free childcare to parents of one-year-olds and two-year-olds.

This is in addition to the existing childcare schemes run by the government, on which it has spent a total of £4 billion since 2018.

Working parents in the UK will no doubt breathe a sigh of relief with the revised childcare policy as it encourages more parents of young children to return to the workforce.

Given that UK childcare costs are among the highest in the world, this is particularly welcome to families on tight budgets and where both parents (if present) are working.

All parents to three and four-year-olds can currently claim 15 hours of free childcare per week thanks to the childcare changes in policy. In some cases, they can apply for an extra 15, making for a total of 30 hours of childcare per week under the 30 hours of free childcare eligibility.

The eligibility for free childcare for the extra 15 hours dictates that both parents must work more than 16 hours a week at minimum wage, but neither can earn a net of more than £100,000 per year.

They can also claim the 30 hours in addition to claiming Universal Credit, tax credits, Tax-free Childcare, or childcare vouchers under the tax-free childcare eligibility.

These childcare changes in 2023 could impact your daycare nursery’s income streams, as more parents might use government-funded childcare hours.

If you are running a daycare centre, it is, therefore, important to familiarise yourself with the rules and eligibility criteria for free childcare of these schemes to assist your clients in understanding their options and obligations and ensure a smooth payment process.

This article dives deep into it all:

Eligibility for free childcare

Whether or not you qualify for 30 hours of free childcare depends on factors such as whether you are working, what your income is, your child’s age and any special circumstances, your immigration status, and your partner’s circumstances.

Work status

“Work” here includes employment, self-employment, or a combination of the two. You can apply for free childcare if you (and any partner you have) are:

  • Working
  • On annual/sick leave
  • On shared parental or adoption leave

If you are on adoption leave for a child aged 3 to 4 years, you will need to return to work within 31 days of applying for childcare.

If you are not currently working, you could still be eligible for childcare if your partner is working and you receive the following:

  • Carer’s Allowance
  • Incapacity Benefit
  • Severe Disablement Allowance
  • Limited Capability for Work Benefit
  • Contribution-based Employment and Support Allowance

You can also apply for childcare if you will be starting/restarting work within the next 31 days.

Income level

You (and any partner you have) must expect to earn a minimum of the following amounts over the next three months:

  • £1098 (if you are under 18/an apprentice)
  • £1557 (if aged 18 to 20)
  • £2117 (if aged 21 or 22)
  • £2167 (if aged 23 or more)

You can use the total of all your earnings if you are doing multiple jobs. If you are self-employed and do not expect to earn enough in the next three months or work throughout the year but do not get paid regularly, you can take an average of what you expect to earn over the tax year.

It is also important to remember that certain types of income, including pension, property income, interest, and dividends, do not count towards the minimum eligibility amount.

Child’s age and circumstances

The 30 hours of free childcare apply to children between one and four years of age (with the new law coming into force). Moreover, if your child does not live with you for most of the time, you are not eligible.

Immigration status

To receive the free childcare, you and your partner must both have a National Insurance number. In addition, you must have:

  • British/Irish citizenship
  • Settled or pre-settled status
  • Permission to access public funds

Partner’s circumstances

If you and your partner are married, in a civil partnership, or living together as though you were, you need to include their name on the application.

If your partner is/will be absent from the household for over six months or are a prisoner, their employment and income will not impact your eligibility.

If you are separated from your partner, you must jointly decide who will have a childcare account, as both of you cannot have accounts for the same child. If you cannot decide, you can apply independently, and HMRC will choose one of you to have the account.

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    Other childcare schemes

    1. Tax-free childcare

    Since 2018, the UK government has provided tax-free childcare in the form of £500 every three months for children aged 11 and under (and £1000 every three months if the child is disabled). The money can fund things like after-school activities once the child starts attending school.

    2. Tax credits

    Those who receive working tax credits can claim an extra amount of up to £122.50 per week for one child and £210.00 for two or more children.

    3. Childcare vouchers

    The Childcare Vouchers scheme was a popular initiative in the UK, allowing parents to use a portion of their pre-tax salary to purchase vouchers for childcare services. The programme officially closed to new entrants in 2018 with the introduction of Tax-Free Childcare.

    However, parents who had already registered for the scheme before this cut-off date can continue to benefit from it. Under the Childcare Vouchers scheme, eligible parents could use up to £55 per week of their pre-tax salary to purchase childcare vouchers, essentially making this portion of their income exempt from both National Insurance and income tax.

    This allowance could be used towards the cost of nursery care, after-school clubs, and other forms of registered childcare.

    4. Universal credit

    Those working and receiving universal credit can claim back up to 85% of their childcare costs, capped at £646 per month for one child and £1108 per month for two or more children.

    Have your own daycare centre?

    In light of the childcare changes 2023, it is crucial for parents and daycare centre operators to stay on top of things. If you are running a daycare centre, we are here to offer our expertise.

    Managing your accounts and payroll can consume substantial time, leaving you with little energy for handling children. Even if accounting does not daunt you, you still need to spare time to grow your business – delegate your accounting to Bradleys.

    With our team of specialist accountants for daycare nurseries, you can maintain control over your cash flow and manage your tax and bookkeeping deadlines efficiently, especially with the childcare changes 2023.

    We will give you a clear overview of your business and handle all your correspondence and submissions to HMRC and Companies House. Trust us, once you establish sound accounting procedures for your daycare, it can be one of the most rewarding businesses to run. Contact us to know more.

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