The Budget 2013: Childcare
Article published on 18th April 2013
Will I be better off?
Childcare costs are the bane of many a parents lives. It can often feel as if the majority of your wage packet goes on them. For many years it has been debatable as to whether or not families are financially worse off by having two adults working rather than one.
The Budget 2013 has made provisions for families with parents who have both decided to return to work. Some parents are fortunate to have grandparents who can look after their children all or part of the time. For those who cannot the expense of childcare can seem insurmountable.
At the moment parents who are basic rate taxpayers are entitled to apply for £243 a month in tax-free childcare vouchers from their employer, £2,916 per annum. Higher rate tax payers who joined the scheme after the 6th April 2011 are entitled to £124 a month, a total of £1,484 per annum. These vouchers can be claimed by each parent towards their total childcare costs, but are not made available by all employers.
As of autumn 2015 families who have both parents in employment earning under £150,000 per year, or a single parent in employment will be entitled to £1,200 towards childcare costs. The £1,200 will come in the form of tax-free vouchers that can be applied for by parents and are subsidised by the government. These vouchers are available upon a per child basis.
From the start of the initiative in 2015 the previous childcare voucher scheme will be unavailable to all new parents/children. However parents who already use the voucher scheme with their employer can continue to use the original scheme if they want to.
Existing childcare scheme
Two parents in employment will find that the original voucher scheme with their employer is more financially beneficial than the new scheme. For example, two parents claiming as basic tax earners will receive a maximum of £5,832 per annum towards childcare costs, or £2,968 for higher rate tax payers. This compares to the new scheme that will pay a maximum of £1,200 per child, meaning that you would need to have at least three children to see any financial benefit as a higher rate tax payer, or five children for basic tax rate payers.
A single parent in employment paying basic rate tax will receive a maximum of £2,916 to childcare costs, a higher rate payer £1,484. A basic rate tax payer would need to have at least three children, and a higher rate tax payer two children, to find the new scheme more financially beneficial.
These childcare vouchers are available up to your child being fourteen years of age.
New childcare scheme
The new childcare voucher scheme has the advantage that it will be universally available to those parents in employment. This will be far better for many people in employment whose employers do not offer a childcare voucher scheme.
The new scheme will initially be available for any child of five years of age or younger. This will gradually be increased to the age of twelve years.
What would happen if I lost my job?
If you were to lose your job the childcare vouchers would stop being available to you. As you will not be in employment you may decide to stop taking your child to childcare facilities and instead look after them yourself. However, you may not like the idea that your child will lose the enhanced social development that comes with you child mixing with other children of their age.
In this case it is worthwhile considering Unemployment cover. Unemployment cover, also known as Redundancy Protection, typically protects up to 65% of your gross income, should you lose your job. Insurance Providers offer different stipulations as to how much of your income you can cover based upon your gross or net income, monthly bills and/or mortgage repayments.
These policies are rather confusing and it is rather common for people to over insure themselves without realising it. This means that you could be paying higher premiums than you need to, for cover that you will not be able to claim for. Our trained advisors specialise in Unemployment Insurance and can make sure that you only apply for the cover that you need and are eligible for.
If you would like to know more about Unemployment cover please visit here. Alternatively feel free to contact one of our industry trained advisors on freephone 0808 17 82 777
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