Tax-free Childcare is a government scheme that pays 20% of childcare costs up to a maximum of £2000 each year. The scheme is open to all parents of children under 12 (or under 17 if disabled). You can apply to open a Tax-free Childcare account online. If you are having difficulty with your Tax-Free Childcare account you can call the childcare service helpline on 0300 123 4097.
Tax-free Childcare is a UK-wide scheme covering England, Scotland, Wales and Northern Ireland.
To be eligible for the Tax-free Childcare Scheme, you must be working (and if you have a partner they must work too), and you must not be receiving support with childcare costs (childcare costs element) through Tax Credits or Universal Credit. Most parents who are eligible for Universal Credit or Tax Credits can save more money using the childcare elements of these benefits instead of using Tax-Free Childcare. If you work but your partner is unable to work because they are disabled or care for a disabled person, you are eligible for the Tax-free Childcare Scheme.
Usually both parents in a couple must work on an employed or self-employed basis and have an income of at least £125.28 per week. Self-employed people will be allowed start-up periods where this income level doesn’t have to be met. Periods on maternity leave, sick leave, paternity leave, parental leave, adoption leave and shared parental leave will count as being in work. However, eligibility is limited to the last 14 days of leave where parents are claiming for a new child, whose birth or adoption led to the time off.
The scheme is not available to parents where either a single parent or either member of a couple earns over £100,000.
To be eligible the household must have one child under the age of 12, or a child with a disability under the age of 17. It will run according to the school year – so that disabled children will be eligible until the September after their 16th birthday, while other children will be eligible until the September after their 11th birthday.
Unlike the childcare voucher system, it doesn’t rely on your employer setting up a scheme, and it is available to self-employed people too.
If you want to find out what help you might be entitled to try the government’s childcare calculator, available here.
The government contributes 20% of childcare costs, with the maximum help set at £2000 per year per child (or £4000 if the child is disabled). It’s called the Tax-free Childcare Scheme because 20% is the basic rate of income tax. It will work by parents paying money into an account with a childcare voucher provider, which the government then tops up. For example, if you put £80 into the account, the government will put in £20.
People who are already using the childcare voucher system will be able to continue using it if they wish. Parents cannot use both childcare vouchers and Tax-free Childcare. The government proposes to close childcare voucher schemes to new claimants in October 2018. If you use a workplace nursery and get tax relief on the costs of childcare there, this won’t change. For a comparison of Tax-Free Childcare and Childcare Vouchers see our article.
A disabled child, for the purposes of Tax-free Childcare, means a child who is receiving disability living allowance (DLA), personal independence payment (PIP), an armed forces independence payment, or a payment from elsewhere in the European Economic Area which has a similar character to those benefits.
Children who are certified as severely sight impaired or blind are also disabled for the purposes of Tax-free childcare.
The support for childcare costs in Tax Credits will not change. You won’t be able to use the Tax-free Childcare Scheme if you are receiving Tax Credits.
Universal Credit is being introduced across the country but is not yet available to all parents making a new claim. It replaces Child Tax Credit, Working Tax Credit, Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance and Housing Benefit. But to begin with, it won’t affect existing claimants of these benefits.
Under Universal Credit, you are able get help with childcare costs even if you work less than 16 hours. Usually, both parents have to work, with some exceptions such as where one partner has long-term sickness or disability, or caring responsibilities for a disabled person. A maximum of 85% of qualifying childcare costs can be included in Universal Credit. Qualifying childcare costs mean registered or approved childcare of up to £175 a week for one child or £300 for two or more. So 85% is £148.75 for one child and £255 for two or more, these figures represent the maximum amount, it is important to note that you will receive less if your income is higher.
This is separate to the Tax-Free Childcare Scheme. Further tax-free childcare is also available to parents or carers if the childcare is registered with the Care Quality Commission.
This advice applies in England, Wales, Scotland and Northern Ireland. If you live in another part of the UK, the law may differ. Please call our helpline for more details.