those of you who use tax free childcare...

[bloominconfused]

please help me understand how it works!

Been trying to get my head round it for bloomin' ages.

My understanding is that the most they will contribute is £2000 a year.

My fees are paid monthly but the amount varies as to whether it's a 4 or 5 week month.

So, 4 week month it's £1000 a month and 5 week month it's £1250. How does this then work with the tax free childcare? How do I work out what my fees will be monthly with tax free applied? How do I know how much to pay into the account every month?

Not sure if I'm being stupid or not!

For every 80p you pay the gov. Pay 20. So if your bill is 1000 for the month you will put in 800 and the gov will top up to 1000. So you have to work out 80% of your bill each month and put that in the account then gov top up the 20.

Hope that makes senses.

Times the bill by 0.8.

Ie £1000x 0.8 = £800

What PPs said, but bear in mind the govt will pay in a maximum of £500 during each three-month period. So if you pay in £2000 during the three-month period, the govt will top up by £500. If your childcare costs exceed £2500 per child per quarter, you'll not receive the top-up on whatever you pay in over and above.

Also, dont worry about putting too much in. It doesn't go anywhere so you can use it like a savings account for the months where the bill is higher.

I tend to budget £600/month but some months it would be less. When I come to put December's payment in for example, I take a view and either top up the full budgeted £600 or I might put less in (as its christmas) and use some of the accrued money in the account instead.

Set up the account and have a look around. It'll make more sense to see it I think. You can always start paying in now ready for your LO to begin nursery.

Once I get my nursery invoice I use a calculator to work out 20% then take that off the total and put that amount into the account. If you put in too much then you can withdraw it but obviously not the amount they’ve topped it up with.

You aren’t being stupid, it’s hard to picture exactly how it works until you’re up and running with it, but don’t stress. My bill also varies monthly. I worked out my yearly bill and divided it by 12, then have a standing order to pay in 0.8 of that amount in every payday. If the bill is less than that it doesn’t matter as the excess just stays in the account. If it looks like I might be a bit short one month (hasn’t happened in nearly 2 years, I paid in a small amount extra at the very start to cover the first more expensive month) or if DD has had extra sessions, it’s easy to upload a little bit extra as a one off payment. You can also withdraw money easily although obviously they take the 20% back off. The 20% is added as soon as you upload anything so it’s easy to check how much you have in.

It’s a pretty simple system once it’s set up and you get into the swing of what you need to pay. If you pay in more than the limit then you just don’t get the 20% on the excess as far as I can tell (my bill is usually around 800 per month so I’ve never hit the limit).

What confuses me is the maximum they'll pay in.

So for example, January's Bill is £1100, that means I pay £880 and they pay £220. Fine.

February is £1000 so I pay £800 and they pay £200, again, all fine.

March is another £1100, I'll pay £880 and they'll pay £220. But no, surely that can't be right because that works out as them paying £640 over a three month period but they'll only pay a maximum of £500 over a three month period, so how does that actually work?

Or is it that, January and Feburary they paid in £420 so in March they'll only pay £80 towards the bill and I'll pay the remainder? Then April comes and a new three month period begins?

It's so confusing!

is it that, January and Feburary they paid in £420 so in March they'll only pay £80 towards the bill and I'll pay the remainder? Then April comes and a new three month period begins

This

Or is it that, January and Feburary they paid in £420 so in March they'll only pay £80 towards the bill and I'll pay the remainder? Then April comes and a new three month period begins?

This. Only thing is I’m 99% sure the three month periods run from when you start using the service - so if you started in December, the first period would be Dec/Jan/Feb and reset in March.

I recommend calculating the information month cost. Remove £500 and dividing the rest by 3. Then put in the same amount each month. First 2 months you have a bit leftover and least month you use it all up. That is what I do, and have all the money transferred by standing order so no need to worry

Just realised something else, I've made a massive error! I'm in talks to return to work FT, hence looking into the tax free childcare. Been a sahm for a few months. DSs nursery charge fees in advance but my pay wouldn't be in advance and I don't have the £1000 up front to pay for his first month of FT fees. 🤦‍♀️sahm for awhile longer I guess! on the upside, at least I understand the tax free childcare now. 😁

I’d just get an overdraft for it. You must need to go back to work if you don’t even have £1,000 in savings.

Wow georgie that's not fair. Not everyone has thousands in a savings account you know. We are both in professional roles but our savings are often wiped out buy big or emergency purchases.
Stupid thing to say really.

I don’t have thousands either! We both work full time though to maximise our income for exactly that reason.

Well, money is definitely tight. We get by and manage but a little extra would make us feel safer and more comfortable month to month, hence me considering returning FT. Reality is though, we don't have 1k to pay fees up front. I'm not eligible for an overdraft and even if I was I'd feel hesitant. We don't have much money but we don't owe any either. No credit cards, no overdrafts, no finance agreements or any debt besides the mortgage. We did have some emergency savings but recently had to dip into those for emergencies unfortunately but it wasn't thousands anyway.

But surely you can see the logic that if you owe nothing, have savings but money is tight, the initial outlay for childcare could ultimately improve your financial position in the slightly longer term? You're always going to have that upfront investment at some point...

I’d ignore comments like you must need to go back to work if you don’t even have £1,000 in savings as they clearly aren’t made by someone aware that a fair number of families are having to use food banks these days, let alone not even have £1000 in savings. Seems a bit odd to imply it’s strange to not have that saved in one breath and then suggest just getting some debt in another.

For what it’s worth, I could cover that bill from savings. But most is locked away in higher interest accounts and what I can access is for emergencies and so I probably wouldn’t want to dip into it. If I’d been out of work for longer than my mat leave we probably wouldn’t have the money there either. If I was returning to work I’d probably hold off a bit longer and save up some of the money in advance.

Good luck OP. Childcare is a minefield. Hope you manage to get back into work soon.

Yes, definitely, I see that. Our financial situation will be much improved if I take the FT job. Have just spoken to a family member who may be able to loan me the initial 1k to cover the fees which is great. I feel awful though, putting DC into Nursery FT. I'll miss him so much. But I guess, it's the right thing to do, isn't it? Just keep telling myself that I'll cherish the time we have together much more as they'll be less of it! Mum guilt is a bitch.

Job interview at 1pm today!

Good luck on the interview!

I just used to pay in roughly the same amount into the account each month to work around/maximise the £500/quarter contribution limit. The money just sits in the account, so it's not use it or lose it.

Just be careful that they have actually topped up the account each time. We had issues with them messing us around some months and not doing it.

Interview went well. Think I might have the job!

One more question about the childcare, if anyone knows, looking again today it said once you put your money in, etc, that funds are usually available to the nursery within 3 working days. But the Nursery accept payment no later than the 1st of the calendar month. So if I get paid on the last day of the month and pop it in the tax free account, the funds won't necessarily be available to the nursery for the 1st?

For example for us, our fees for December have to be paid to nursery by the end of November. Because of the lag, this is really coming out of my October salary. So I got paid at the end of october, put money into the tax free childcare account when I was paid, waited a few days for it to be topped up and then paid it to nursery at the start of November, but apparently it can take a week or so to actually reach nursery after I release the funds. So nursery are receiving my payment at some point in early to mid November to pay the December fees.

Oh and congratulations on the interview, fingers crossed for you!

Usually funds are available right away. It may say 3 working days, but in practice, it’s available pretty much instantly. I’ve been using it since the initial trial and at most it might take until the next day. But then it does take 1 working day to transfer to your childcare provider. If you get paid the last day of the month, you should be able to get them payment by the 1st. Unless the 1st is over a weekend. If you pay on Friday, payment won’t go in until Monday. Very likely you have a bit of leeway. Your nursery will obviously run into this problem a lot. Honestly, we pay as soon as we can. If it takes HMRC the weekend to transfer the payment, that’s what it takes. Late penalties don’t apply until its 15 days late and our nursery doesn’t care if it comes in on the 3rd some months. They get it’s a bit of a pain to use.