If you have found yourself worrying about the costs of childcare, you are not alone - the costs of childcare can be overwhelming no matter the age of your child.
Thankfully, there are options provided by the Government, including the ability to claim Tax-Free Childcare, designed to help parents struggling to keep up with costs.
From 2020-21, there was a £660 million underspend in the Government's Tax-Free Childcare Scheme meaning potentially thousands of parents in the UK are missing out on Government help to cover the costs of childcare.
If you are a parent looking for advice and information on Tax-Free Childcare, this article is for you. Here, we will cover what schemes are available and how they work, what costs you can cover with Tax-Free Childcare payments, how to apply, and frequently asked questions.
Many parents are eligible for help to partially cover the costs of childcare. The main options currently available are the Tax-Free Childcare scheme provided by the Government and an additional 30 hours of free childcare.
Tax-Free Childcare is a government scheme that helps working parents cover some of the costs of childcare. You can use the payments on a range of approved childcare costs.
The scheme is provided to help with the costs of approved childcare. These are considered to be:
- Registered nannies, childcare clubs, nurseries or childminders
- Nannies or childminders working with a registered agency
- Schools that are registered
- Home care workers who are working for a registered agency
You are able to use your Tax-Free Childcare to cover childcare costs while you are working, sleeping during the day due to working night shifts, and whilst you are travelling to and from your workplace.
You will not able to use the scheme to cover the costs of compulsory education or private lessons during the school day - all Tax-Free Childcare has to be outside of school hours.
Childcare provided by foster carers is only covered if they are a registered childcare provider.
For childcare provided by relatives, the rules are as follows:
England and Scotland
- Any Tax-Free Childcare must be provided by a relative that is a registered childminder (must be outside your home).
- Tax-Free Childcare cannot be provided by your partner.
- Claims for 30 hours of free childcare cannot be used for childcare provided by a relative.
Northern Ireland
All of the following must apply when getting help covering costs for childcare from a relative:
- They must be in the Home Childcare Approval Scheme
- They care for your child outside of your home
- They provide childcare for at least one other child, that you are unrelated to.
Wales
- Only relatives who are registered as childminders and care for the child outside of your home are covered by the scheme.
In the UK, the government runs a Tax-Free Childcare Scheme that offers up to £2000 a year (the cap is up to £500 every three months) for each of your children to help cover some of the costs of childcare. This can be up to £4000 per year if your child is disabled.
What are the eligibility requirements?
The stipulations for the Tax-Free Childcare scheme are listed below.
Your child must be 11 years old or younger (17 or younger if your child is disabled) and usually live with you. This applies to adopted children, but not children in foster care.
If your child is disabled, they will be eligible for the higher amount of Tax-Free Childcare if they:
- Get Disability Living Allowance, Armed Forces Independence Payment, Personal Independence Payment, or Child Disability Payment (Scotland only)
- Are certified as blind or severely visually impaired
If you are working, you are normally eligible to get Tax-Free Childcare provided you are:
- Currently in work
- Off work on sick leave or on annual leave
- On shared maternity, paternity, shared parental or adoption leave
If you are not currently working, you may also still be eligible if you or your partner is working while the other receives one of the following:
- Incapacity Benefit
- Severe Disablement Allowance
- Carer’s Allowance
- Contribution-based Employment and Support Allowance
Your income needs to be over a specific threshold to be eligible for Tax-Free Childcare. Within the next three months, you will need to earn at least the National Living Wage or National Minimum Wage for an average of 16 hours per week. If you have a partner, they will need to earn at least the same as well.
For those who are self-employed and are not expected to make enough profit within the next three months, an average amount of earnings from the current tax year can be used instead. This is not applicable if you started your business in the last 12 months.
How does Tax-Free Childcare work?
Tax-Free Childcare works by setting up an online account where you pay money. For every £8 you put into the account, the Government pay a top-up amount of £2 for you to use to cover the costs of a childcare provider. Your funds from the Government will usually be available the same day you deposit money into the account - you can use the money as soon as it is shown as 'cleared funds'
How do I apply for Tax-Free Childcare?
You are required to open an account using your Government Gateway ID to get started. Additionally, you will need your details (along with your partner's if you have one), your National Insurance Number, and your Unique taxpayer Reference if you are currently self-employed. The application for claiming tax-free childcare is quick to complete and will usually take around 20 minutes.
During this process, you will also find out if you are eligible for 30 hours free childcare.
Many parents are eligible for 30 hours of free childcare in addition to the Tax-Free Childcare.
In order to be eligible, you need to meet all of the following criteria:
- Your child is 3 to 4 years old
- Live in England
- The childcare must be with an approved childcare provider
The 30 hours of free childcare can be used for 38 weeks of the year, during the school term times.
When to apply
As soon as your child turns 2 years and 36 weeks old, you can apply for 30 hours free childcare. Below is a table of the recommended times to apply - this will help ensure that you receive the code needed. You must provide a valid code by the end of the month that your child starts a new term.
| When your child turns 3 | When they can get 30 hours from | Recommended time to apply |
| 1 September to 31 December | Term starting on or after 1 January | 15 October to 30 November |
| 1 January to 31 March | Term starting on or after 1 April | 15 January to 28 February |
| 1 April to 31 August | Term starting on or after 1 September | 15 June to 31 July |
For the 30 hours of free childcare, you will need to reconfirm that you are eligible every three months. Failure to do so will result in your code being invalid.
Aside from Tax-Free Childcare and claiming 30 hours free childcare, there are some other options available for parents.
Universal Credit for Childcare
The childcare element of Universal Credit can be used towards the costs of childcare. Those who qualify for it can claim up to 85% of the costs of childcare, up to a maximum of £646.35 a month for one child, and a maximum of £1,108.40 monthly for two or more children.
Universal Credit cannot be used in conjunction with the Tax-Free Childcare Scheme therefore you will need to check which one is more beneficial - you can use the Government Calculator for this.
Childcare Voucher Scheme
The Employer's Childcare Voucher Scheme is now closed to new applicants, however, if you were eligible and claimed vouchers you can still use the scheme if it is still supplied by your employer.
Here is a comparison of Tax-Free Childcare versus the Childcare Voucher Scheme:
| Tax-Free Childcare | Childcare Voucher Scheme |
| Anyone can apply | Only available to those currently on the scheme if the employer still offers them |
| Minimum earnings of £142 a week and both parents need to work if a couple | No minimum earnings applicable and only one parent needs to work |
| For children up to the age of 11 (17 if disabled) | For children up to the age of 15 (16 if disabled) |
| Up to £2,000 per child | Maximum amount of £933 per year, per year for basic rate taxpayers |
Similar to Universal Credit, it is worth checking which option you are better off using - you will not be able to return to Childcare Vouchers if you switch.
Tax Credits for Childcare
The scheme for Child Tax Credit has now closed to new applicants, however, those who have used it may be eligible to claim 70% of their childcare costs back dependent on their income.
Frequently Asked Questions
Below are some of the most frequently asked questions:
Do both parents have to be working to be eligible for Tax-Free Childcare?
Both parents are required to be working in order to be eligible, however, there are a few exceptions to this if you or your partner are working while the other receives:
- Incapacity Benefit
- Carer's Allowance
- Severe Disablement Allowance
- National Insurance Credits due to incapacity or limited capability for work
- Employment and Support Allowance
Additionally, if you are not currently working but are due to be within the next 31 days, you can apply for Tax-Free Childcare.
Can I use Tax-Free Childcare alongside any other form of childcare scheme?
You can use Tax-Free Childcare alongside the 15 or 30 free hours if you are eligible, however, you cannot also claim Universal Credit or Tax Credits, or use Childcare Vouchers in conjunction with it.
If you successfully apply for Tax-Free Childcare, your existing Universal Credit or Tax Credits will stop and you will then be ineligible for them. You can however use Childcare Vouchers and Universal Credit alongside one another. To check whether you would be better off receiving another form of funds towards childcare, you can check the government website before making your decision.
Can I get Tax-Free Childcare if I am on parental or adoption leave?
Yes, if you, and your partner if you have one, are on maternity, paternity, shared parental or adoption leave, you can get Tax-Free Childcare.
For parents on adoption leave, you will only be able to apply for the child you are on leave for if you are returning to work within 31 days of the application date.
Can single parents get Tax-Free Childcare?
Yes, single parents can apply for Tax-Free Childcare. If you are jointly responsible for your child, you need to decide which one of you will apply.
If you are applying, you must include your current partner if you live together and are married or in a civil partnership, or if you are not married but live together as though you were.
Can my employer contribute to Tax-Free Childcare?
Tax-Free Childcare is provided by the Government and you will be responsible for applying and managing an account. However, your employer is able to make contributions into your Tax-Free Childcare account but they will not receive any discounts or benefits when doing so.
How do I check if my childcare provider is registered?
You can find out through your online childcare account, where there are details for all registered childcare providers. Alternatively, you can check the following for registered providers:
- England - through Ofsted or the list of registered agencies
- Scotland - through Care Inspectorate for Scotland
- Wales - through Care Inspectorate for Wales
- Northern Ireland - through the Early Years Teams