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Childcare costs and Working Tax Credit

Coronavirus: how it affects childcare costs and Working Tax Credit For the time being, you do not need to tell HMRC about temporary reductions in your hours of work due to coronavirus, as long as you are still employed or self-employed. However, you must report other changes as usual, and if your childcare costs stop, reduce or increase, you must tell HMRC, as this could affect your Working Tax Credit. You must also tell them if you are paying for childcare which isn’t currently being provided.

Tax Credits have now been replaced with Universal Credit (UC) for most new claims. If you are already receiving Working Tax Credit you will be able to add the childcare element to your claim. You can also start to get Working Tax Credit if you already get Child Tax Credit. However, if you need to make a new claim for tax credits then you will have to claim UC instead of Tax Credits (unless very limited circumstances apply). You can receive help with your childcare costs through Universal Credit; read more about the rules here.

You may be entitled to help with childcare costs in your Working Tax Credit. First of all, check whether you meet the conditions for Working Tax Credit. There are separate conditions for the childcare element.

If you meet the conditions for the childcare element, and you have informed the Tax Credit Office about your childcare costs, it will be included in the calculation. This means you should get more help (but it may not be as much as the childcare element itself due to the way your income reduces your tax credits).

Childcare element conditions

The rules for the Working Tax Credit childcare element are:

  • Childcare costs can be included for children until the week of 1 September after they are 15, or 16 if they are blind or on Disability Living Allowance or Personal Independence Payment
  • The childcare must be registered or approved and not provided by a close relative if it is being given in your own home. Most school-based childcare is also covered. The rules on what childcare counts are slightly different in England, Scotland, Wales and Northern Ireland – get advice if you are not sure, or check the leaflet WTC5 ‘Help with the costs of childcare’.
  • If it is a one-parent household the parent must work 16 hours or more.  If there are two adults both must work 16 hours or more, unless one partner is on certain benefits or national insurance credits for sickness or disability (for example, getting Employment and Support Allowance), in hospital, in prison, or a carer entitled to Carer’s Allowance
  • The maximum childcare costs taken into account are £175 a week for one child or £300 a week for more than one child.
  • The maximum award is 70% of what you pay or 70% of the maximum childcare costs, whichever is lower. This means the most help you can get is £122.50 a week for one child or £210 for two or more children, but remember that you may get less than this because tax credits are reduced by your income.

Calculating your childcare costs

If your childcare costs vary it may be better to give the Tax Credit Office an average figure, or if you only pay childcare costs at certain times during the year, you can report these fixed dates to the Tax Credit Office. If you pay childcare costs all year round but they vary in school holidays, you can work out an average based on a year of paying childcare costs. If you only pay childcare costs at certain fixed times of year, you can choose to report the average over these fixed periods and be paid extra tax credits only when you have these costs. Alternatively, you can report what you actually pay, when you pay it, but this may mean you lose out over the school year as some changes cannot be taken into account.

If you are not sure, the safest approach is to report all changes to the Tax Credit Office and keep a note of the date and time that you notified them. There is a childcare costs calculator on gov.uk, which will calculate an average for you if you have been paying childcare costs for at least a year.

What about free childcare and other help with childcare costs?

You can get 30 hours free childcare at the same time as claiming tax credits or childcare vouchers (see below).  Note that you should inform the tax credit office if your  childcare costs stop or change by an average of £10 or more a week.

It’s also a good idea to bear in mind other sources of help you might be able to use. If you are already signed up to childcare vouchers (this scheme has closed to new applicants since October 2018) you can use these at the same time as tax credits, but most people can save more money using the Working Tax Credit childcare element alone. Another childcare scheme is tax-free childcare, but you won’t be able to use this if you claim tax credits or you are in a salary sacrifice scheme for vouchers. You can find out more about all the schemes from the Childcare Choices website, and there is a tool to help you work out how much help you would get from each scheme you are eligible for here.

Tax Credit childcare element and the two child limit

The two child limit does not apply to the childcare element of Working Tax Credit. This means that you can receive payments to cover the childcare costs for any number of children, but the maximum amount of help doesn’t change if you have two children in childcare or more than two.


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