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The Childcare Payments Bill was introduced in the House of Commons as Bill 7 of Parliamentary session 2014-15 and had its First Reading on 5 June 2014.

The Bill introduces a new Tax-free Childcare scheme to support eligible parents with childcare costs. Under the scheme, the Government would provide 20 per cent support on costs up to £10,000 per year for each child via an online account. The Government would top-up any payments made into the account, capped at a maximum Government contribution of £2,000 a year for each child.

The scheme would be available to parents in the UK. To qualify for top-up payments, both parents, or a lone parent:

• must be over 16 and in paid work (employed or self-employed);

• must not be receiving support through tax credits, Universal Credit or employer-supported childcare;

• must not be paying tax at the additional rate.

Money in the account would only be permitted to be spent on ‘qualifying childcare’. In addition, parents would only be able to use the account to pay for childcare that enables them to work. Qualifying childcare would include registered or approved childcare but not care provided in the course of compulsory education. Provision for what is, or is not, to be regarded as registered or approved childcare may be made by regulations.

A person applying for a Tax-Free Childcare account would be required to make a ‘declaration of eligibility’ stating that they satisfy the eligibility criteria. Eligibility for the scheme would then be set for a quarterly entitlement period.

Eligible parents making payments into their childcare account would have the amounts topped-up by the Government. Where there is more than one qualifying child, separate accounts would be required.

Tax-Free Childcare would not be available to tax credit or Universal Credit claimants. The Bill includes provisions to ensure that those claimants would have their tax credit or Universal Credit award terminated when a valid declaration of eligibility was made for the purpose of the Tax-Free Childcare scheme.

The new scheme would replace the existing Employer-Supported Childcare (ESC) scheme (except in relation to workplace nurseries) which is delivered through a tax and National Insurance exemption, available to parents whose employers offer the scheme. Accordingly, self-employed parents cannot benefit from the ESC scheme. Once the new Tax-Free Childcare scheme is implemented, the Bill provides powers which would be used to close ESC to new entrants.

The Tax-Free Childcare scheme is likely to be managed on behalf of the Government by Her Majesty’s Revenue and Customs (HMRC) and is expected to be introduced in the autumn of 2015.

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