Working and paying for childcare? Don’t miss out on top-up help
How the Tax-Free Childcare scheme works and how to make the most of it
The Government’s misleadingly named “Tax-Free Childcare” program provides up to £2,000 annually per child to help cover childcare expenses—ranging from nurseries and childminders to certain holiday camps. Despite 1.3 million families qualifying for this support, nearly 800,000 aren’t taking advantage of it. Keep reading to see if you qualify and learn how much you could save.
Tax-Free Childcare: eight need-to-knows
1 – Tax-Free Childcare is only best if you can’t get other state help – so check if you’re eligible for free nursery hours or benefits first
Optimize Your Childcare Savings: Start With State Support
Before exploring Tax-Free Childcare, always investigate the state support available to you. Assistance typically comes in two main forms:
‘Free’ Nursery Hours for Children Aged Three to Four (and Some Younger)
If your child is three or four years old, you may qualify for up to 30 hours of government-funded childcare per week. The exact number of hours depends on factors such as your income, employment status (including your partner’s if applicable), and your location within the UK.
Additionally, many parents in England with children aged nine months to four years may now benefit from some funded nursery hours as well.
If your child falls into this age range, review the eligibility criteria for free childcare before considering other options—after all, nothing beats free!
Additional Support Beyond Free Hours
If you don’t qualify for free childcare or if the hours provided don’t fully meet your childcare needs, there are still other forms of assistance you may be eligible for.
Taking the time to understand these options ensures you maximize the support available and save as much as possible on childcare costs.
Universal Credit (or Tax Credits) may cover some of your childcare costs
Even if you believe you may not qualify, there’s no downside to doing a quick Benefits Check. Many people have been pleasantly surprised to discover they were eligible for Universal Credit after checking just in case.
If you qualify for Universal Credit and are employed, you could reclaim up to 85% of your childcare expenses. This support provides up to £1,014 for a single child and up to £1,739 for two or more children.
Alternatively, if you currently receive Tax Credits, you might be eligible for assistance covering up to 70% of your childcare costs. However, new applications for Tax Credits are no longer accepted.
Warning! Already claiming Universal or Tax Credits? Accessing the Tax-Free Childcare scheme will stop ALL your benefits
If you receive help with childcare expenses through certain benefits, you CANNOT also use the Tax-Free Childcare scheme simultaneously. Setting up a Tax-Free Childcare account will result in the cessation of your current benefits (including the entire payment, not just the portion for childcare).
If you’re eligible for Universal Credit or Tax Credits, these options typically provide the greatest support for childcare costs. However, if you’re unsure and believe that Tax-Free Childcare might suit your needs better, it’s important to seek advice. You can get free, personalized guidance from Citizens Advice or independent advice centres.
Make sure to consult a benefits adviser before making a final decision, as this is a critical choice. Choosing incorrectly could have significant consequences, especially if you depend on your current benefits to cover childcare or other essential living expenses.
2 – Get up to £2,000 per child per year
The government-supported program allows you to receive an additional 20p from the state for every 80p you contribute to your Tax-Free Childcare account.
In summary, here’s how much you could benefit:
- Parents who qualify for the scheme can receive up to £2,000 annually for each child. This benefit can be used to cover up to £10,000 of childcare costs per child every year, effectively adding £2,000 per child (or up to £4,000 annually for a child with disabilities).
To get started, create an online Tax-Free Childcare account through your Government Gateway ID. For every 80p you contribute, the Government will add 20p to your account balance.
- There is a quarterly cap of £500 on the government’s top-up for childcare costs. This means parents can only receive a maximum of £500 in government contributions every three months, which could be a limitation for families with higher childcare expenses.
Tip: If your childcare costs fluctuate seasonally, consider depositing money into your account consistently throughout the year. This way, you can accumulate the full government top-up over time and use it when your expenses peak, helping you navigate the £500 quarterly limit effectively.
3 – Tax-free Childcare is open to ALL workers, including the self-employed
If you’re single, you can qualify for Tax-Free Childcare as long as you are employed, whether it’s in a traditional job or self-employment. For those with a partner, both individuals typically need to be working to meet the eligibility criteria. However, there are specific situations where you may still qualify even if one of you is not currently working, including:
- You’re on sick leave.
- You’re on annual leave.
- You’re on shared parental, maternity, paternity or adoption leave, and already have a Tax-Free Childcare account for another child.
- You or your partner is in work and the other isn’t able to work and receives certain benefits such as incapacity benefit, carer’s allowance or severe disability allowance.
4 – Your child must be 11 or younger (or 16 if your child has a disability)
The program is accessible to parents until the September following their child’s 11th birthday (or until their 16th birthday if the child has a disability).
5 – You’ll need to earn at least national minimum wage, but £100,000 a year or less
To be eligible, you (and your partner, if applicable) must meet the following criteria:
- Earn at least the national minimum wage: You need to make the equivalent of 16 hours per week at the national minimum wage for your age group to qualify.
- Have an income of £100,000 or less annually: Both partners can earn up to £100,000 each and still qualify. However, if one earns £30,000 and the other exceeds £100,000, you won’t be eligible. Eligibility is calculated based on your ‘adjusted net income,’ which is your total taxable income minus certain deductions such as pension contributions or charitable donations. If you have any tax-deductible expenses, they could potentially bring you under the threshold.
Your partner doesn’t have to be the child’s other parent—it’s determined by who you live with. For instance, if you’re a single parent and a new partner moves in, their eligibility will impact your claim for Tax-Free Childcare. If they don’t meet the criteria, you’ll no longer qualify.
What if I’m self-employed?
Over the next three months you and your partner (if you have one) must each expect to earn at least:
- £2,379 if you’re aged 21 or over
- £1,788 if you’re aged 18 to 20
- £1,331 if you’re under 18 or an apprentice
If you have been self-employed for less than 12 months, the minimum income requirement does not apply. This means you can still qualify for the scheme, even if your earnings fall below the threshold.
6 – Use money on all kinds of childcare – incl after-school clubs
Tax-Free Childcare can be used for a wide range of childcare services, including after-school clubs and holiday programs. Regardless of the type of childcare you select, it’s essential that your provider is registered with the Tax-Free Childcare scheme and a recognized regulator like Ofsted, the Early Years Register, or the Childcare Register.
This makes it possible to use tax-free childcare for various holiday activities such as tennis, football, and arts clubs, along with certain holiday camps. By logging into your account, you can view a list of all registered providers. If your chosen provider is listed, you can conveniently make payments directly through your account.
Tax-Free Childcare covers your usual range of registered providers, such as:
- Breakfast clubs and after school clubs
- Childminders
- Nurseries
- Playgroups
- Nannies
- Au-pairs
If you’ve a particular provider in mind, it’s worth checking that it’s registered with the scheme, before opening your Tax-Free Childcare account.
7 – How it works & how to sign up
To get started, you’ll need to set up an online childcare account through the Government Tax-Free Childcare website, provided you meet the eligibility criteria. The process is straightforward and should take around 20 minutes. Make sure you have your national insurance number available, and if you’re self-employed, you’ll also require your unique taxpayer reference.
Only one parent is permitted to open the account, though both can access and use it. Therefore, you’ll need to choose which parent will register the account in their name.
- How do I pay in? You can add funds by setting up a standing order or making a payment directly from your bank account using your debit card. However, setting up a direct debit is not an option. Additionally, other individuals, such as grandparents or family friends, can also contribute to your payments.
- When does the top up appear? The Government should top it up with the extra cash the same day.
Recent updates to the system have made bank transfers the quickest method for funds to reach your account. While standing orders are still an option, using a bank transfer ensures that the money appears as ‘available funds’ much faster.
- How quickly do providers receive the funds? You can use the funds to pay your childcare provider once your account displays ‘available funds’. Simply choose your provider and transfer the money through your Tax-Free Childcare account.
If you complete your payment before 2:30 PM, the funds should be credited to the provider’s account on the same day. Payments made after 2:30 PM, or during weekends or public holidays, will typically be processed and arrive on the next business day. However, in certain situations, it may take up to three business days for the payment to be received. To avoid missing any deadlines from your childcare provider, it’s advisable to plan your payments in advance when possible.
8 – If you already get help with childcare costs, it’s likely those will pay more
You must verify your continued eligibility for Tax-Free Childcare every three months to avoid missing out on benefits. A key aspect of the Tax-Free Childcare program is that you are required to confirm your eligibility four times annually. The process is straightforward and you’ll receive timely notifications to remind you when it’s time.
Failing to reconfirm by the specified deadline means you’ll need to cover the full cost of your childcare without receiving the 20% government contribution. While it’s still possible to reconfirm your eligibility after the deadline, it may take some time for the system to update, potentially causing you to lose out on some of the top-up payments.
You can easily check if you’re due to reconfirm by logging into your account.
Vouchers vs Tax-Free Childcare: Which is better for you (if you still have the choice)?
The Tax-Free Childcare scheme replaced the previous Childcare Vouchers program, which ended for new applicants in October 2018.
If you were already enrolled in the voucher scheme before it closed, you can continue receiving them as long as you’re employed by the same company, and they still offer the vouchers. For more information on the scheme, check out our comprehensive childcare vouchers guide.
In some cases, individuals who are receiving vouchers may find it more beneficial to switch to Tax-Free Childcare. If you’re considering making the switch, it’s important to compare the benefits of both schemes before deciding. Keep in mind that once you switch to Tax-Free Childcare, you cannot return to vouchers.
Your choice of scheme will depend on your income, tax payments, and childcare expenses. The table below outlines which option is most likely to be the best fit for you.
Tax-Free Childcare vs. Childcare Vouchers
| Tax-Free Childcare wins for… | Parents with more than one child. The help available through Tax-Free Childcare increases with the number of children you have. |
| Parents with high childcare costs – usually over £9,500 a year. | |
| People (or couples) who want to become self-employed. You’ll be eligible for Tax-Free Childcare if you’re self employed (as long as you earn less than £100,000 each). | |
| Childcare Vouchers win for… | Couples where one parent doesn’t work, or works less than 16 hours a week. |
| Basic-rate taxpayer parents with total childcare costs of £9,400 or less (or single parents with childcare costs under £5,000). | |
| Higher-rate taxpayer parents with total childcare costs of £6,300 or less (or single parents with childcare costs under £3,000). | |
| People earning £100,000+ a year (or in a couple where one earns £100,000+ a year), as there’s no income limit with childcare vouchers. | |
| Parents of older children. You can use the voucher scheme for childcare until your child turns 15. |
Use the childcare calculator to check your exact circumstances
The table above gives you a rough indication of whether you’re likely to better off on Tax-Free Childcare or Childcare Vouchers.
For a personalised assessment, use the Government’s childcare calculator to see what help you’re entitled to and how much you could get.
What to do if Tax-Free Childcare is better for you
To transition to the Tax-Free Childcare program, simply submit an application. After approval, you’ll need to inform your employer in writing of your decision to permanently exit the voucher scheme. This must be done within three months. The most straightforward method is to contact your voucher provider and request the cancellation of your membership.
After leaving the voucher scheme, you can still use any remaining vouchers in combination with Tax-Free Childcare to help cover your childcare expenses. Just be sure to verify the expiration dates with your voucher provider to ensure they’re still valid.
What to do if sticking with vouchers is better for you
If you’ve determined that sticking with vouchers is the best option for you, you can continue receiving them as long as you remain with your current employer and they still offer the voucher program. However, it’s important to understand that once you transition away from using vouchers, you will not be able to return to the scheme.
Tax-Free Childcare FAQs
Q – Is Tax-Free Childcare available when I’m on parental or adoption leave?
A – Yes, you typically qualify for Tax-Free Childcare if you (and your partner, if applicable) are on shared parental leave, maternity, paternity, or adoption leave, and are planning to return to work within 31 days of your initial application.
Q – Can we get Tax-Free Childcare if one of us isn’t working?
A – Even though the guidelines state that both parents must be employed, you can still qualify for a childcare account if one partner is working while the other is unable to work and is receiving any of the following benefits:
- Incapacity benefit or long-term incapacity benefit
- Severe disablement allowance
- Carer’s allowance
- Contribution-based employment and support allowance
- National insurance credits (because of incapacity or limited capability for work)
Q – Can I get Tax-Free Childcare if I’m about to start working?
A – If you’re not working at the moment but are planning to begin or resume work within the next 31 days, you may be eligible to apply for Tax-Free Childcare.
Q – How do I check if my provider is registered?
A – Once you sign in to your account, you’ll have access to a list of all registered providers. If your provider is listed, you can easily make payments directly to their bank account using the BACS system through your account.
Q – I’m a single parent, do I qualify?
A – Single Parents and the Tax-Free Childcare Scheme: What You Need to Know. Single parents can benefit from the Tax-Free Childcare program as well. It’s important to note that your eligibility is determined by who you live with, not necessarily who the child’s other parent is. For example, if you are a single parent and later have a new partner move in, but they don’t meet the required criteria, you may no longer be eligible for the Tax-Free Childcare scheme.
Q – A technical issue with the website has cost me money – what can I do?
A – If you’ve incurred losses due to the technical issues that have previously impacted the Tax-Free Childcare website, you are eligible to recover your expenses.