New £ 10,000 interest-free loan to help parents pay for childcare – but only if your employer signs up – The Sun
PARENTS can borrow up to £ 10,000 interest-free to help pay for childcare under a new benefits plan.
But in order to benefit from the aid, your employer must be affiliated with it.
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Parents risk paying up to £ 12,000 a year to put a two-year-old in full-time nursery, according to the Coram Family and Childcare charity.
But a new program launched by Catapillr has promised to help parents cover the costs by offering them a loan at no cost.
The Childcare Cash Advance Scheme works the same as many interest-free loan programs for rail passes, which some employers already offer.
Parents of young children and school-aged children can borrow the money up front and pay it back over 12 months.
How to apply for tax-free child care
YOU can use the government child care calculator to determine what assistance you may be entitled to.
You can find this tool on Gov.uk.
If it looks like you will be eligible, you can apply online.
You will need your contact details (and your partner’s, if you have one), including your National Insurance Number and Unique Tax Reference (UTR), if you are self-employed
It takes 20 minutes to apply and you will know if you qualify within seven days.
Be aware that you must apply for both zero-rated child care and 30 hours of free child care at the same time.
If you are eligible, you will get a child care account. You can use it to pay for your daycare.
To continue to receive the benefit, you must confirm that your information is up to date every three months.
The loan is managed through Catapillr’s online hub and can also benefit from a 20% increase as it can be paid into the government tax-free child care program.
This is where parents pay into an account with a childcare voucher provider, which the government then recharges.
The loan will help parents with irregular incomes to cover childcare costs, especially in situations where providers ask for more than a month’s worth at one time.
It can also benefit those who claim Universal Credit and find it difficult to cover up-front childcare costs.
Universal Credit covers up to 85% of childcare costs but it is granted to the applicants as an arrears of wages.
The loan will mean that child care costs are covered up front, helping children overcome the financial barrier of child care to return to work.
But parents won’t be able to recoup the costs from Universal Credit if they choose to use the loan instead.
Catapillr founder Phil Robinson told The Sun the idea was based on his own experience tackling the cost of childcare for his three young sons.
He added: “Our goal is to make child care cheaper and more manageable for working parents.”
But parents whose regular income does not cover childcare costs should be wary of taking out a loan as it will still have to be paid back.
What help is available for parents?
CHILD CARE can be an expensive business. Here is how you can get help.
- 30 hours of free childcare – Parents of three and four year old children can request 30 hours of free child care per week.
To qualify, you must work at least 16 hours per week at the living wage or the national minimum wage and earn less than £ 100,000 per year. - Tax credits – For children under 20, some families may benefit from help with childcare costs.
- Tax Free Child Care – Available for working families and the self-employed, for every £ 8 you put into the government will add an additional £ 2.
It is not a wage sacrifice plan and loans are repaid through regular deductions taken directly from a worker’s take-home pay.
This means that it will not affect the universal credit payments as they are calculated on the monthly gross salary.
Financial expert Kate Smith from Aegon warns that while loans like this can be a “lifeline” for some parents, they should also be treated the same as others.
She said: “As with any loan, people need to keep an eye on all repayments and make sure that they don’t get into too much debt and have the ability to manage their finances.
“Although interest-free, the child care loan has to be repaid within one year and is paid directly out of employee salaries, so there is little flexibility.
“Employees can feel like they are actually linked to their employer.
Parents who want to use the loan to qualify for the tax-free childcare arrangement will have to manually transfer the money to their account.
You will also have to pay for your childcare service directly through the portal by selecting the service from a drop-down menu.
These include all childminders, nannies, nurseries and professional activities for children registered with Ofsted, as well as after-school clubs, holiday clubs and sports activities.
But although its use is free for borrowers, employers have to pay a fee of typically £ 100 per year per loan.
Employers can set their own personalized loan criteria, such as how long the employee had to work for the company before taking out a loan.
The maximum amount that can be borrowed is £ 10,000 per year due to current tax rules which set a maximum amount of tax-free benefits an employer can offer.
Kate added, “The program can be a way to retain valuable employees with children, but employers should be careful not to encourage their employees to take on too much debt and potentially forgo other interest rate loans.
“They should point out the risks, including the ability to repay the loan and other interest-bearing debts, and the effect on other payments such as pension contributions.”
But Julia Waltham, policy officer at the Working Families charity, said loans are not a solution as many parents remain “out of the workforce” due to expensive childcare costs.