Tax Free Childcare
Tax free childcare was legislated through the Childcare Payments Act 2014, which introduces a new scheme which provides financial support to working families with the costs of childcare. The purpose of the scheme is to enable those with responsibility for children to take up paid work, or to work for longer, where they are currently deterred from doing so because of the need to meet childcare costs.
	Once the scheme is implemented, for every £8 which a person pays towards childcare costs, the Government will make a top-up payment of £2. The value of Government support will be capped at a maximum of £2,000 per child each year (or £4,000 for disabled children), although there will be no restriction on the number of children for whom support would be available. The scheme will be managed by HMRC and the Government intends to introduce it in early 2017.
	The introduction of the scheme was announced by the Chancellor of the Exchequer at Budget 2013 when it was described as ‘tax-free childcare’. The use of that term reflected the fact that the 20% Government top-up payments in effect represent the basic rate tax element which would apply to the income used by the individual to fund their childcare costs. Government top-up at a rate which parallels standard rate Income tax is a feature it shares with the Gift Aid Small Donations Scheme.