Tax-Free Childcare

Last updated: 29 Jun 2021

What is the Tax-Free Childcare Scheme?

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.

Who is Tax-Free Childcare for?

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 any support 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 £142.56 per week.  Recently self-employed people are allowed start-up periods where this income level doesn’t have to be met, or can use an average over the tax year.   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. Temporary changes due to coronavirus may mean you can continue to qualify in 2021/22 even if your earnings fall, provided you are either on furlough or claiming a Self-Employed Income Support Scheme Grant.

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.

How much help does Tax-Free Childcare Scheme offer?

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.

What about the current Employer Supported Childcare schemes?

People who are already using the childcare voucher system are able to continue using it if they wish.  Parents cannot use both childcare vouchers and Tax-free Childcare.  The childcare vouchers scheme was closed to new claimants in October 2018. If you use a workplace nursery and get tax relief on the costs of childcare there, this can continue.

Which children with disabilities are eligible?

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.

What about support from Tax Credits?

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 – and if you register for tax-free childcare, your tax credits will stop.

What about support from Universal Credit?

Universal Credit replaces Child Tax Credit, Working Tax Credit, Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance and Housing Benefit. It won’t affect existing claimants of these benefits unless you have a change of circumstances which means you need to make a new claim (and even then, you should get advice before claiming UC). You cannot get help from tax-free childcare and still receive UC, and you are not eligible for tax-free childcare if you are getting any UC at all, so it is important to make the right decision.

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, with a limit of £646.35 per month for one child and £1,108.04 per month 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.

You may find this tool helpful if you are trying to decide the best route for you to get help with childcare costs.

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.

If you have further questions and would like to contact our advice team please use our advice contact form below or call us.

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The information on the law contained on this site is provided free of charge and does not, and is not intended to, amount to legal advice to any person on a specific case or matter. If you are not a solicitor, you are advised to obtain specific legal advice about your case or matter and not to rely solely on this information. Law and guidance is changing regularly in this area.