UHY Ross Brooke Chartered Accountants

Budget 2023 – Childcare changes unwrapped

child benefit and income tax

Last week the Chancellor announced that working parents of all preschool aged children over the age of nine months will be entitled to 30 hours of free childcare per week in term-time in England.

By Kerry Hawkins

Currently, parents who work more than 16 hours a week and earn less than £100,000 are entitled to 30 hours free childcare per week for children aged three to four in term-time.

When will it start?

From April 2024, working parents of two-year-olds will be able to access 15 hours of free childcare.

From September 2024, 15 hours of free childcare for working parents will be extended to all children from the age of nine months.

From September 2025, working parents of children under the age of five will be entitled to 30 hours free childcare per week.

How will it help?

The Budget announcement finally recognises that affordable childcare is needed right from when parents are looking to return to work after maternity leave or shared parental leave. With one of the most expensive childcare systems in the world, current childcare costs can prevent parents from returning to work or increasing their hours as their earnings may not even cover the childcare fees. This is particularly a problem for parents on low incomes or where a family has more than one child at nursery under the age of three.

The days of expensive childcare are well behind my own family, but we once paid £1,000 per month in nursery fees for just three days per week when both children were under three. Back in those days Childcare vouchers reduced the cost a little by providing much needed tax breaks, but it’s not difficult to see why parents were discouraged from returning to work.

The current offering of Tax-Free Childcare for eligible families with children 11 years or under means the government will pay in £2 (up to £2,000 per year) for every £8 you pay into an online childcare account, and this can run alongside the current 30 hours of free childcare if you’re eligible for both.

Providing more hours of free childcare should however open the door for more parents to return to work or increase their working hours, which is good news for the economy.

Parents of primary school aged children are not left out as local authorities and schools will be given more funding for what’s known as “wraparound care”. The government expects that by September 2026 most primary schools will be able to provide their own before and after school care.

Parents on Universal Credit are set to get further support too.

Will it work?

The staggered approach is designed to give childcare providers time to prepare for the changes and the hourly rate paid to childcare providers by the government is set to increase. Historically government funding for the free childcare hours has not been sufficient and nurseries have often had to resort to charging a fee for “extra” services to make ends meet.

From September 2023 the staff-to-child ratio is changing such that one member of staff will be allowed to look after five two-year-olds, up from four two-year-olds which is the current rule. The ratio changes are optional, and some nurseries have already said they do not wish to reduce the ratio.

In summary, it’s a welcome move for parents but is sure to be a challenge for nurseries as they cope with rising costs and staff shortages.

Download our summary of the key points from the Budget,

Next steps

As always, should you have any questions relating to the budget announcements and how they could affect you, please do get in touch.

If you run a nursery, pre-school or childcare business and need business advice, specialist charity accounting services or day-to-day accountancy services, we have specialists in your sector who’ll go the extra mile for you.

Share This Post

Related insights

Talk to us

Newbury: 01635 555666
Abingdon: 01235 251252
Swindon: 01793 610008
Hungerford: 01488 682546