Don't let childcare ruin the summer holidays

As schools break up, parents need all the assistance they can get to avoid taking time off work. But help is at hand, says Chiara Cavaglieri

(ADRIAN DENNIS / AFP )

With the end of the school year upon us, children all over Britain will be looking forward to a long summer break. But for many working parents, those six weeks will force them to dig deep to cover the mounting cost of childcare.

Although the latest holiday childcare cost survey by the Daycare Trust revealed a modest 3 per cent rise in the average cost of a week's childcare across Britain to £93, this hides wide regional variations. Costs can range from just under £60 a week for local authority-provided childcare in Wales to more than £119 a week for private or voluntary sector childcare in the East of England. The survey also shows that local council childcare, which is the cheapest option for parents, is struggling to meet demand. Spending cuts and the impact of the recession have seen the amount of holiday childcare falling in 40 per cent of local authorities.

"Where provision is available, parents are being expected to shell out the equivalent cost of a family holiday abroad over the course of the summer – simply for the privilege of having their children looked after so that they can work," says Alison Garnham, the chief executive of the charity.

For parents struggling to pay their bill, the good news is that there is help available. If you pay for nurseries, playgroups, childminders, nannies and au pairs, or even after-school and summer clubs for older children, you may be eligible for financial assistance.

Your first port of call is the childcare element of working tax credit. This is designed to help parents working at least 16 hours a week with some of their costs so that they don't miss out financially by staying in work. The maximum you get depends on how many children you have. The Government will cover up to 80 per cent of your childcare costs up to £175 a week for one child and £300 for two or more children. This works out to a maximum payout of £140 a week and £240 a week respectively.

"The childcare element of working tax credit is by far the most generous component of the tax credits package. Because working tax credit childcare is such a generous subsidy, it is worth a lot to people on low and modest incomes, but claimants can still receive something even though their income may be quite high," says Robin Williamson, the technical director of the Low Incomes Tax Reform Group.

The final figure is based on your income, however, and changes are afoot. Last month's Emergency Budget announced that from April 2011, most families earning more than £40,000 will get fewer tax credits. Although some families on lower incomes will see the child element rise by £150, in 2012 the income figure will fall again to around £30,000. In the meantime, make sure you're getting everything you're entitled to.

If you use or have to pay extra for childcare in the holidays, your entitlement is based on your average childcare costs over the year. You can still claim if you need childcare only for a short fixed period such as the summer holidays, rather than throughout the year, and your extra tax credits are calculated and paid during that time.

Next, you should see if your employer runs a childcare vouchers scheme. In most cases, the vouchers are offered as part of a salary sacrifice, allowing you to pay for childcare from your salary before the tax and National Insurance are removed. You take a pre-agreed cut in pay and get the rest in childcare vouchers so you pay tax only on your reduced salary.

Vouchers could save you up to £1,200 a year in tax, although it does depend on your income, and be warned that it may affect your eligibility for the childcare element of working tax credits. This is because the tax system doesn't allow you to count the vouchers as paying for childcare. So if you pay £100 on childcare but use £70 worth of vouchers, for tax credit purposes your childcare costs are just £30 which may mean you get less help. Always check that you will actually be better off using vouchers.

Finally, keep an eye out for free and discounted childcare. For example, all three- and four-year-olds are entitled to 12.5 hours a week of free "early learning" classes for at least 38 weeks a year (rising to 15 hours for everyone from September 2010). Your local authority or your child's school may also offer cheaper childcare, and the Youth Hostel Association (YHA) operates heavily subsidised "Do it 4 Real" camps every year for 10- to 19-year-olds with concession prices from just £49.

If you're a full-time student, you may also be able to get extra help in the form of the childcare grant up to a maximum of £255 per week if you have two or more children. There is also the parents' learning allowance which could give you between £50 and £1,508 for this tax year. If you're studying to be a healthcare professional, you can apply for the NHS childcare allowance.

Expert View

Alison Garnham, Daycare Trust

Childcare costs are a huge financial burden – and the recent changes to tax credits mean that many working parents will in future receive less However, help towards childcare is still available – including childcare vouchers, tax credits and the free entitlement, and it is vital that parents claim all they can.