A Guide to Childcare Costs
This primer is designed for families in the UK.
Why you need to know about childcare
If you are a parent, the chances are very high that at some point you will use a childcare provider of some sort to look after your little ones... However, understanding what kinds of support with childcare – both financial and non-financial – are available to you may not always be obvious. This primer is here to make it clear what childcare support could be available to you.
There are 2 main types of childcare support
Financial support
Receiving financial support to help pay your childcare bills can really boost your family’s finances. For some families, this valuable benefit can mean the difference between being able to work, or not.
Non-financial support
When it comes to non-financial support, understanding how you can work with your employer to manage your childcare responsibilities can make juggling work and family far less challenging.
Most parents know childcare support for babies, toddlers and pre-schoolers is available, but aren’t always aware of all the other options. By the time children reach school-age, many parents don’t know there are various options still available to support the costs associated with childcare during:
'Wrap-around' care, such as breakfast and after-school clubs
Extra-curricular activities
Holiday clubs and schemes
Interesting Fact
The average cost of a part-time (25 hours) nursery is £127 per week, rising to £242 per week for a full-time place.
The average weekly cost of after-school care for a school-aged child is £57, rising to £65 if cared for by a childminder.
What financial help with childcare costs are available?
Tax-free childcare
Under the tax-free childcare scheme which was introduced in April 2017, any eligible working family can be included if they have a child or children under 12 (or under 17 if disabled) and meet the eligibility criteria. To be eligible, both parents will have to each earn at least £139 per week (equivalent to 16 hours at the National Living Wage), but no more than £100,000 each per year. To make matters more confusing, a combined income of over £100,000 is fine. Single parents have to meet the same earnings criteria. Once enrolled, the government will contribute £2 for every £8 you pay into your online account. You can receive up to £2,000 per child per year - that's up to £500 every three months.
Salary sacrifice
This workplace benefit allows parents to pay for childcare with vouchers through ’salary sacrifice’ – up to a maximum of £55 a week, depending on their tax band. To use Childcare Vouchers, parents opt in to the scheme offered by their employer and choose to give up a certain amount of their pre-tax salary. They receive this amount in Childcare Vouchers instead, saving on national insurance and tax in the process. Depending on their tax band, parents can save up to £933 a year each. The childcare voucher scheme closed to new registrants in October 2018 so, if you aren’t already opted in with your employer, you will not be able to use Childcare Vouchers.
Free funding for pre-schoolers
Every 3 and 4 year old is currently entitled to 15 hours free childcare for 38 weeks of the year, from the term after they turn three. This is known as ‘universal funding’ and can be taken at an OFSTED registered childminder, nursery, or pre-school. For eligible working families in England, an additional 15 hours free childcare on top of the universal funding is available for 38 weeks. The eligibility criteria are the same as for tax-free childcare.
Tax credits for childcare
You may be able to claim: 1) Working tax credit- an extra amount which can help cover the costs of approved childcare 2) Child tax credit 3) Universal Credit. Note: Working tax credits and child tax credits are closed to new applications for the majority of people from 1 February 2019 and have been replaced by universal tax credits. If you are an existing tax credits customer you can claim back up to 70% of your eligible childcare costs for children under 16 (or under 17 for disabled children). Depending on your income, you could get up to £122.50 a week for one child or £210 for two or more. If you cannot make a new claim for tax credits, you may be able to apply for Universal Credit instead.
What sort of childcare to choose?
When it comes to using the financial support you receive for childcare, you will need to find an OFSTED registered childcare provider. These can include:
Registered childminders
Registered nurseries
Registered nannies
Registered after-school clubs
Registered holiday playschemes
Registered schools
Home careworkers working for a registered home care agency
Top Tip
At schools that offer Qualifying Childcare you can use Childcare Vouchers to pay for activities such as music lessons and sports clubs, as long as they are invoiced separately to compulsory education fees, not a part of the National Curriculum and taking place after school hours on the premises that form part of the school’s annual inspection.
You can find an OFSTED registered provider close to you by searching on the Childcare site.
Interesting Fact
The ‘Right to request holiday and wraparound childcare’ allows parents and childcare providers to ask their local school to start offering childcare outside school hours, including during the holiday.
Things to consider
Not every family will be able to access all the help available, as some select based on an income threshold, and others are only available to employed workers. If you are lucky enough to be able to choose between schemes, watch out for the following:
If you receive any benefits
If you apply for a tax-free childcare account, you will lose access to any tax credits. Make sure you know which leaves you better off if you are currently on tax credits BEFORE you make an application for tax-free childcare.
It's tax-free childcare OR Childcare Vouchers
If you apply for a tax-free childcare account, you will lose access to any tax credits. Make sure you know which leaves you better off if you are currently on tax credits BEFORE you make an application for tax-free childcare.
Non-financial childcare support
Right to statutory unpaid leave
Parents with at least one year’s service with their current employer qualify for a total of 18 weeks unpaid parental leave per child, which can be taken any time up until your son or daughter’s 18th birthday. The limit on how much parental leave each parent can take in a year is 4 weeks for each child (unless the employer agrees otherwise), and it must be requested 21 days in advance. You don’t have to take all the leave at once but you must take it as whole weeks (eg 1 week or 2 weeks) rather than individual days, unless your employer agrees otherwise or if your child is disabled.
Flexible working
All employees have the legal right to request flexible working. There are different ways of working flexibly including: part time, flexi hours, compressed hours, and annualised hours. A different working pattern may make the difference between being able to manage childcare, and not.