Can I Expense Childcare When Self-Employed?

by | Apr 28, 2022

The notion of opening and running a family business is a dream dripping with charm and nostalgia. Small family-run businesses were, in many ways, a commonality of the past before big business took over and parades of shops were replaced with high streets. However, the idea of family-run businesses has been returning, especially since the pandemic. The low set-up costs of operating online and selling platforms such as Etsy and Not On The High Street have opened the marketplace up to smaller businesses.

Aside from the access to market, there is also a strong ambition for many modern parents to become self-employed, opt to freelance or set up their own practices or businesses in an effort to introduce a more flexible work schedule. Whilst many parents who go self-employed find themselves able to fit work around their children, a vast number struggle with childcare costs, especially during school holidays. With no holiday pay and with the rising cost of living forcing many self-employed parents to work longer hours, it’s important to understand if you can expense childcare when self-employed.

Here are the facts, as they stand as of April 2022 in regards to childcare when self-employed:

Expensing Childcare When Self-Employed And Receiving Universal Credit

Many who go self-employed may find they receive or are signed up to Universal Credit for a while. Especially those who have turned to self-employment after having been made unemployed or having left the workplace due to health problems. Whilst on Universal Credit and self-employed, parents may claim back up to 85% of childcare costs. This also applies if you are employed and in receipt of Universal Credit. Per month you are entitled to claim back up to £646.35 for one child and £1108.04 per month for 2 or more children. It is important to note that this is paid in arrears. Find out more about what childcare costs can be covered under Universal Credit when you’re self-employed here.

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Childcare Entitlement For Children 3-4 years

In England, you are entitled to some free childcare if your child is between the age of 3 and 4. This includes the time up until your child is eligible to start school. So, for example, if your child turned 4 in December 2021 but doesn’t start school until September 2022, they will be covered up until this date, under the scheme. The 30 hours free childcare scheme does as named and covers up to 30 hours of childcare during school term time only. This is not in arrears so no payment is due for up to 30 hours and the childcare provider is responsible for claiming this back. The scheme is accessible for childminders as well as nursery schools. However, the operator must also be signed up to the scheme, which is something to consider when choosing childcare, and organisations may differ in how they accommodate the scheme with some only making it available during certain periods. You can register for the 30 hours free childcare scheme here. You must be working or self-employed and earning less than £100,000 per year, but exceptions do apply which you can find more about here. If your child is under 3 years old or at school age and you are self-employed, you may be entitled to Tax-Free Childcare instead. Read more below.

Childcare When Self-Employed

Paying For Childcare Through Your Company

You should no longer be paying for your childcare directly through your limited company. Since the government replaced the Childcare Voucher scheme with Tax-Free Childcare in 2018, the process is different. This means that childcare when self-employed no longer goes through the payroll system but instead is managed by the parents themselves, via an online account. The new childcare tax-free system means self-employed parents should also manage their childcare costs through their Government Gateway account, rather than directly through the business. So the short answer is, no you can not expense your childcare costs. The long answer is that you can still claim tax back as a working individual, including if you are self-employed, through the government Tax-Free Childcare Scheme.

Claiming Childcare When Self-Employed

If you are earning under £100,000 per year and you have children under the age of 12, then you can claim back 20p of every 80p you spend on childcare costs. This is supported through the UK government’s Child Tax-Free Scheme and is aimed at supporting working and self-employed parents by enabling them a rebait on a portion of their childcare costs. The scheme allows you to claim up to £2,000 of childcare costs per year, more if your child is disabled. However, there is a list of qualifying criteria you must meet, including the following:

  • Any child you claim back childcare costs for must be under 12 years old (17 if they are disabled)
  • If you have a partner they must also be in work (unless they are unable to work and in receipt of benefits related to this)
  • You must earn a minimum of £152 per week and if you’re self-employed this can be averaged out (this applies to both of you if you have a live-in partner). If you have been self-employed for less than 12 months then the minimum threshold does not apply
  • You must earn under £100,000 per year (this applies to both of you if you have a live-in partner)

What Childcare Is Available Under The Tax-Free Childcare Scheme?

The scheme is versatile in terms of what childcare it covers. Breakfast clubs, nurseries, after-school clubs, childminders and nannies may be used but they must also be registered with the scheme for you to claim back costs. Check whether your childcare provider is registered before you book anything. If you are self-employed and your child is at school then you’ll probably be using the scheme to reduce the costs of your childcare during the school holidays. Still, many self-employed parents are eligible for the scheme but don’t register. Although it may seem like another task to add to the ever-growing to-do list, during periods such as the summer holidays, this support can be the difference between making a profit in those weeks and not. Moreover, the Tax-Free Childcare Scheme covers many extra-curriculum activities so it can be an opportunity for your child to develop their passions – for sport, art, drama or wherever else they might be.

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