Government to increase childcare tax-free allowance next year

Prime minister David Cameron has announced an increase in childcare tax-free allowance to all children under the age of 12 in the first year starting 2015.

Under the new scheme parents paying 80% towards childcare costs of up to £10,000 per child to a registered provider will get the remaining 20% tax free.

As many as 1.9 million working families under 12 will be eligible in year one and would benefit the rise in childcare allowance from £1,200 to £2,000.

In addition, people working part-time and earning more than £50 a week, parents on maternity, paternity and adoption leave and those starting their own business but below the earnings threshold will be eligible to support in first year.

The prime minister said: “Tax-free childcare is an important part of our long-term economic plan. It will help millions of hard-pressed families with their childcare costs and provide financial security for the future.”

Today’s announcement comes a day before the chancellor George Osborne delivers his annual budget.

According to the Family and Childcare Trust, average cost for a nursery for children up to two rose by 4.2% last year to £106.38 per week for a part-time place, while a full-time place costs £11,000 for a year.

At present, employees of participating companies can reduce their childcare costs through a tax-free voucher scheme. Figures show, only about five per cent of the UK employees and 450,000 families are currently signed for it.

Mr Cameron said, under the new initiative “twice as many families will be eligible for support including self-employed people.”

The government also plans to invest 50 million pounds in pupil premium policy for disadvantage children aged three and four. The money will help nurseries and schools employ more qualified staff, increase access to services such as speech and language specialists.

Aastha Gill