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HMRC internal manual

Claimant Compliance Manual

Particular aspects: child care - calculating changes in average weekly child care charges

The way changes in childcare charges are calculated is different depending on how often the customer pays the charges

Listed below are the most common types of childcare charges customers may incur. For more detailed information on childcare changes follow the guidance in TCM0032160 

Variable weekly or monthly charges

If the customer pays different amounts each week or month - to work out if their childcare charges have changed they must:

  • add together what they now expect to pay over the next 52 weeks or 12 months
  • Divide the total by 52 to give the new average weekly amount

This new amount needs to be compared to the existing average weekly costs. If the difference in the average is £10 or more lower or higher then there is a change.

Example

Customer normally pays £40 per week for childcare during term-time and £120 during the school holidays.

Average weekly costs were calculated as:

(13 x 120) + (39 x 40) = Annual costs of £3120, divided by 52 equals:

Average weekly costs = £60

On 1 October 2014 the childcare costs are reduced and during term-time she now pays £30 per week and in the holidays £100 per week.

New average weekly costs are calculated as:

(13 x 100) + (39 x 30) = Annual costs of £2470, divided by 52 equals:

Average weekly costs = £48

The date of the change is 1 October 2014, so the customer must notify us by 1 November 2014, which in this case is 1 month from the date the change occurred, or they may be liable to a penalty charge of up to £300.

Notes: 

  1. Where the average weekly childcare charges decrease by at least £10, the customer must tell us either within 1 month of the date the change occurred or, if later, from the date they realised there had been a change
  2. Average weekly costs must be rounded up to the nearest pound

Because the childcare costs decreased, for tax credits purposes, the effective

  • end date for the previous amount is 25 October 2014 which is the Saturday date 28 days from the beginning of the week (Sunday 28 September 2014) in which the change occurred
  • start date for the current amount is Sunday date immediately after the end date which is 26 October 2014

Note: the start and end dates are always calculated the same way irrespective of whether the change was notified on time or not

Fixed weekly charges

If the customer pays the same amount each week - to work out if there has been a change in their average weekly childcare charges they need to average the new amount they have paid in each of the first 4 consecutive weeks. If the average amount paid in the 4 weeks is £10 or more lower or higher than their current average then there is a change

Example

A customer currently pays £100 a week for childcare. On 12 May 2014 they reduce their hours and need less childcare so their costs reduce to £80 a week. They pay £80 on 12, 19 and 26 May and 2 June.

The date of the change is 12 May 2014, and they must tell us about this by 12 June 2014, which in this case is 1 month from the date the change occurred, or they may be liable to a penalty of £300. For tax credits purposes, the effective end date for the previous childcare amount is 07 June 2014 and the start date for the new amount is 08 June 2014.

Note: where the average weekly childcare charges decrease by at least £10, the customer must tell us either within 1 month of the date the change occurred or, if later, from the date they realised there had been a change.

Fixed monthly charges

If the customer pays the same amount each month, to work out if there has been a change in their average weekly childcare charges the customer must calculate both the existing and new average weekly amounts. If the difference in the average is £10 or more lower or higher then there is a change.

Example

A customer usually pays £300 a month for childcare

Their average weekly costs are therefore £300 x 12 ÷ 52 = £70

On 3 September 2014 the children start with a new childminder who charges £350 a month.

Their new average weekly costs are therefore £350 x 12 ÷ 52 = £81

This is an average weekly increase of more than £10. To make sure the customer receives the full benefit of any change in their tax credit payments from the date of the change they should tell us about the change by 3 October 2014. If they tell us in time the childcare element is recalculated from 31 August 2014 using the new amounts.

Fixed period short term charges

If the customer pays childcare costs for a short period of the year only - to work out if there has been a change, calculate the average weekly costs of both the existing and new amounts for the period in which the costs have changed. If the difference in the average is £10 or more lower or higher then there is a change

Example

If the customer was due to pay £62 childcare charges on 7, 14, 21 and 28 July 2014 and 4, 11, 18 and 25 August which is a total of £496 in 8 childcare weeks starting Sunday 06 July 2014 and ending Saturday 30 August 2014

Their average weekly costs are £496 ÷ 8 = £62

If the customer then pays £75 for extra childcare instead of £62 on 04, 11, 18 and 25 August 2014 which is a total of £300 in 4 childcare weeks starting Sunday 03 August 2014 and ending Saturday 28 August 2014

Their new average weekly costs are £300 ÷ 4 = £75

This is an average weekly increase of more than £10. To make sure the customer receives the full benefit of any change in their tax credit payments from the date of the change they should tell us about the change by 4 November 2010. If they tell us in time the childcare element is recalculated between 03 August 2014 and 30 August 2014

Notes:

  1. short term childcare is for customers who only pay costs for short periods of the year, for example school holidays. If a customer pays childcare throughout the year but incurs additional costs for short periods, these must be added to their normal costs and averaged over the year
  2. from April 2010 the tax credits computer has been updated to allow the end date of a fixed period of childcare to be future posted 10 weeks in advance of today’s date for short term childcare only. This will capture most of the short term childcare claims as the majority are likely to arise from school holidays. If the fixed period end date is longer than 10 weeks from today’s date, you will need to manually end the childcare costs when they cease