The question about whether returning to work after the birth of a child is worth the cost is one faced by thousands of working parents who have to fork out hundreds of pounds a month for child care while they earn a living.
It’s a dilemma that no one should really have to face. But whether it’s financially viable to return to work, or better to stay at home, is a question that many parents unfortunately have to consider.
That’s because childcare costs families more than double their spend on food and drink, according to the Family and Childcare Trust.
British parents now pay an eye-watering average of £116i per week for a part time nursery place - or over £6,000 every year; more than double the average spend of £2,954 a year on food and drink, according to the charity.
Some families will spend all of a parent's earnings on childcare, meaning that working does not make them financially better off. For parents in inner London paying the highest price for childcare at £154 a week for a part time place, that is a third more than the national average.
So if you do want to return to work, here’s how to keep childcare costs as low as possible.
1. Make use of tax-free childcare
Tax-free childcare was introduced in 2017. You set up an online account where you bank payments for childcare and then for every £8 you pay in towards your childcare costs, the Government will add an additional £2 up to a maximum of £2,000 a year for each child up to the age of 12. If you have a disabled child you can claim costs of up to £4,000 each year until the child is 17.
The scheme is being rolled out gradually and to be eligible you need to work at least 16 hours a week and must not earn more than £100,000 a year.
2. Claim your 30 ‘free’ hours
Parents of children aged three and four (and some aged two) can claim 30 hours of free early education. The hours must be spread over at least three days a week and 38 weeks of the year. To qualify, parents need to work at least 16 hours a week and earn less than £100,000 a year and then need to find a childminder, pre-school or nursery that provides the free hours.
3. Call on grandma…or aunty or big brother
Research shows that friends and family members perform nearly half (48%) of all childcare in the UK, saving parents nearly £12,000 each per yearii. The figures show that if you were to rely on family and friends for childcare, you could save £11,752 a year on childcare costs. That’s based on professional childcare arrangements costing, on average, £321 a week, compared to just £95 a week for a less formal arrangement with family and friends.
4. Speak to your employer
Many employers offer help to their employees through childcare vouchers. These are provided to you by your employer (often through a childcare voucher company), and you can use them to pay for some of your childcare. Your childcare provider claims the value of these back from your employer or the voucher company.
Under the existing childcare voucher scheme, parents can pay for childcare via salary sacrifice. Giving £1,000 of salary pre-tax gives parents £1,000 of care vouchers, saving them money as they don’t have to pay tax or national insurance on the amount put aside. Basic rate taxpayers can claim £930 a year per parent.
Parents do however, now have to choose between this scheme and the tax-free childcare system, but if you choose childcare vouchers you have until April 2018 to sign up and you can make payments as long as your employer continues to offer the scheme.
5. Share the costs
Hiring a nanny has largely been seen as the preserve of the wealthy; especially with stories kicking around of some nannies demanding salaries of £35,000 a yeariii. It’s certainly not a cheap option, especially if those costs are only for one child.
But there are ways around it. One solution is a ‘nanny share’, where you share a full-time nanny with another family that also needs childcare.
If you don’t know any other parents that want to share a nanny then check out one of the many websites that specialise in arranging nanny shares. One such company says you should budget for between £1,000 and £1,300 a month for a 30 hour a week shareiv. As well as matching you with a family to share with, they will also take care of contracts, tax and employer’s national insurance, which all have to be taken care of when you employ a nanny.
6. Check whether you’re eligible for any additional financial support
As well as child benefit, there are a number of tax credits that are available to families with children that can help towards childcare costs. The rules are complex and based on your individual circumstances, so visit Gov.uk to find out what help you could be entitled to.
ii Churchill Home Insurance
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. You should regularly review your investment objectives and choices and if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.