Budget 2013: Government announces new tax-free childcare scheme

The Government has unveiled plans for a new tax-free childcare scheme in a bid to reduce the cost of childcare for working families.

It is thought that the initiative, which was announced ahead of Wednesday’s Budget, will ultimately benefit around 2.5 million families.

Under the scheme, eligible parents will be able to save up to 20% of their total childcare costs, or £1,200 per child, with effect from 2015.

The scheme will initially be available to parents of children under the age of five, although it will eventually be extended to include all children under 12.

To qualify, the parents will have to be in work and each must earn less than £150,000 and not already receive support through tax credits and later, Universal Credit.

Families will receive 20% – equivalent to the basic rate of tax – of their yearly childcare costs up to £6,000 per child.

The scheme, which will replace the existing employer-supported childcare programme, will be phased in from Autumn 2015 and will ultimately be open to parents with children under 12.

Announcing the measure, Prime Minister David Cameron said: ‘Too many families find paying for childcare tough and are often stopped from working the hours they'd like.

‘This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs’.