Tax-free childcare payments

[MKCH]

I'm just setting up the account and payments for when my DD starts nursery in September.

As the govt pays 20%, does that mean I only have to put in 80% of the fees every month and it automatically adds the other 20%? Or do I need to put in the full amount and only 80% will be taken?

Just a bit confused!

Thanks in advance for any advice or experience

The gov tops up whatever you put in, by 20% of the amount you put in. So if you put in 500 the gov will add in another 100, i.e. 20% of yours.
If you don't want to create a buffer (eg I put in a bit more than I need to each month, so if I am ever short I have things covered better) then I would take my monthly childcare costs eg 1000, divide by 120 and multiply by 100, with that being what I add every month.

@catmg great, that makes a lot more sense - thank you!

Maximum topup every 3 months is £500 per child. Maximum over the year is therefore £2000 per child. So you pay in £8000 and get £2000 topup.
The topup is 25% of what you pay in... £2000 is 25% of £8000. £8000 is 80% of £10,000.

Be aware of time it takes to clear money. It is much faster now than it was but allow for time for your money going in to clear and the topup to be added. Then allow for time for the payment to reach your childcare provider. Do not do things after 3pm on a Friday... the system only works during work days, so nothing seems to happen at weekends, it will just queue thing at weekends and process the next working day.

Ok so now I'm a bit confused.

Real life scenario is that her weekly childcare will currently come to £137.50. I worked this out monthly to be £595.83 (if based on calendar months which I assume it is).

So do I need to put in £500, and the gov will add £100? Would they then put in £125? It actually makes little difference doesn't it - just means that I'm building up a bit of a buffer if that's the case.

And nursery fees are due on the 1st of the month so I assume I need to set my standing order up for the 28th or similar to ensure my funds clear into the childcare account and then clear to the nursery on time...

Sorry for being so detailed - thank you for your help

Sorry I got it wrong the previous poster is of course right! The gov puts in 25% of whatever you do, up to the £8k limit per year which is stretched over the year so to get the most out of it you shouldn't be putting in any more than £2k per quarter.

If you want to just cover your fees and no more you should put in £496.53. Gov will top up to the monthly figure you've stated. And yes it takes a few days for the top up to clear.

I would not use standing order. I would do things manually for at least a few months. If 28th month was chosen for a Standing Order what would happen in February? What would happen if the 28th was a Friday, there are not enough working days to clear the payment and pay provider.

Payments in can clear the same day or the following working day. The topup can be added that working day or the next working day. You then activate payment to provider (can that part be automated?) which sometimes processes within 2 hours, sometimes the next working day.
So I would allow at least 3 working days. Friday after 3pm, Saturday, Sunday and bank holidays are not working days.

I set up a standing order for 80% of my bill. It works a treat. They add the 20% then pay your entire bill.
Please me mindful though it can take 6 working days from leaving your bank to arriving at your child care provider. So set dates accordingly.
Its really simple once set up but I also got myself tied in knots originally.

I contract parents to pay me on 24th if using tax-free, and even then some don't reach me by the 1st.

Mumof1l is that 6 days due to using a standing order to pay in? Would a debit card payment clear faster?

This is all so helpful / insightful, thank you!

Based on all this, I think my plan of action will be to pay manually for a few months on 22nd of each month until I've seen exactly how long it takes to process. Then at least I know it's going in and coming out on time etc. Then I can reassess once I've seen how it all works and how much the gov is adding and when. It does say that a payment should usually reach the childcare account in two hours but I assume that's if you do it manually.

If you pay for it directly from your bank account to theirs it will clear within a couple of hours (Weekdays only). If you do it about 9am it’ll be there by 12, and as long as you transfer to your childcare provider before 2.30 they will have it the same day too