Whether you've a wee tot or big teen, the costs of childcare can be prohibitive. Yet 100,000s of working parents are missing out on £1,000s of cash, benefits and easy help. This step-by-step guide to boosting your childcare budget includes the unique childcare tax credit calculator, special childcare vouchers, free school schemes and more.

• Childcare isn't just for kids
• Step 1: Grab childcare tax credits
• Childcare tax credit ready reckoner
• Step 2: Childcare vouchers
• Step 3. Free childcare for 3 or 4 yr olds
• Step 4. Free holiday classes and activities
• Related Articles / Discussion

Childcare isn't just for kids

The term childcare conjures up an image of a baby in swaddling cloth being doted over by a kindly nursery nurse. And while that is one element, actually it stretches far wider... for both the vouchers and tax credits any childcare you're paying for includes children of school age too so...

If you're paying for your stubbly six foot 15 year-old to go to an after school or summer holiday club that can count too.

School age means up to the first Saturday following 1 September after your child’s 15th birthday (or 16th birthday if they're registered blind or receive Disability Living Allowance).

It must be a registered provider

The real key is that the childcare provision is registered and regulated by Ofsted. This includes after school and summer clubs, nurseries, playgroups, nanny, childminder or au pairs. If you ask, most providers will simply tell you if they're registered, but there is an official way to check:

• In England. Go to the Ofsted website or call 0845 601 4771
• In Wales. Go to the Care Standards Inspectorate
• In Scotland. Go to the Care Commission
• In Northern Ireland. Contact your local Health and Social Services Trust via the DHSSPS website.

Alternatively go to ChildcareLink where you can find local registered childcare.

Step 1: Grab childcare tax credits worth £1,000s

It's a common misconception that tax credits are for the unemployed, actually it's the opposite, you have to be in work. The Childcare tax credit is designed to help working parents cover some of the cost, so that they still gain by working.

The money available is huge, so it's important to check you're eligible and it's possible 100,000s of families are missing out.

It's worth knowing it's not officially called the Childcare Tax Credit, its technical name is the Childcare Element of Working Tax Credit, yet as that's long-winded we've shortened it for the purposes of this guide. Please note it's not the same as Child Tax Credit.

Unfortunately the entitlement system and eligibility criteria are ridiculously complex, but after painstaking work it basically boils down to the following rule of thumb....

Having said that, even some with household income above £40,000 may be eligible for decent payouts, especially if you have more kids, or a disabled child. Also, if either you or a partner are disabled you both may not need to work 16+ hours a week.

For a full and detailed guide to Tax Credits see the Tax Credits briefing note.

How much can you get?

This tool’s developed to give you a rough idea of the type of payout to expect on the childcare element of tax credits, other (Tax Credits are usually separate although there can be some overlap). There are too many other variables (eg if you or your child have a disability) for the tool to be strictly accurate so please see it as a quick indicator of likely eligibility. After that, go to the tax credit office for the firm numbers.

If you only have childcare costs at certain times of the year (e.g. Summer Holidays), total the cost over that time, and divide by 52 for the average weekly cost. Eg £1,000 over the summer is £19 a week.

Childcare Tax Credits Calculator

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Sorry, you need to be working to get Childcare Tax Credit, although you may be eligible for other Tax Credits.
See the Benefits Checkup guide.

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Select 'Couple' if you are married, including if you don't live together but are still in a relationship; you are living together as if you are married; or are you are in a civil partnership.

Select 'Single' if you are looking after a child by yourself, including if you have separated from a partner and do not intend to get back together.

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Discuss / Report Problems

Childcare Tax Credit Q&A

If you're entitled to tax credits, it's worth understanding your rights before starting. Don't worry it's not too complex and while you will have to fill out forms, there's a helpline that can help you do it.

• How do I apply and check my exact eligibility?

  Rather strangely the government has moved away from the internet for tax credits and prefers people to call the tax credit helpline on 0845 300 3900 to see if they're eligible and find out how to apply. The helpline is open every day, including weekends, from 8am to 8pm (although you can also check on the HMRC Questionnaire).

• How is the cash paid?

  It's paid directly into your bank or building society account each week or month. You can get help for up to 80% of eligible childcare costs, which is limited to £175 a week for those with one child and £300 for those with two or more children; meaning a maximum payout of £140 or £240.

• What counts as being a single parent?

  If you're married or living with someone, then you must put in a joint, rather than single, application for tax credits. You can only put in a single claim if you don’t have a partner. If you're a permanently separated couple, then you are counted as a single parent and the payment is made to the child’s main carer.

• What counts as income?

  It’s any money earned from paid work (or self-employed profits) plus any extra income above £300 you (or a partner) receive from a pension, savings, renting out a property, or things such as a trust or interest in the estate of a person who has died.

  Yet you don’t need to include maintenance money (payment from an ex-partner to help cover the costs of raising your children) or your children’s income.

• When do I need to apply by?

  You can apply at any time during the year if you're a new application, though if you're renewing and have been asked to send back a form it's important you do that by 31 July.

• What do I do if the childcare costs increase or decrease?

  If your childcare costs go up, tell them about it immediately as you may be able to get more money and if you're late you can only backdate it for up to three months.

  If the costs go down, do the same as you're then being overpaid and will have to give the money back, never easy if you've already spent it.

• I only use/pay more for childcare in the summer (or other) holidays, can I still get tax credits?

  Yes, your assessment's based on your year-round childcare costs and that includes summer and other holidays. So they only have care for a bit of the year, add it up and that's your annual cost and that's what you say. While the payment is for a year’s costs, rather frustratingly it’s averaged out and paid to you each week or month.

  So even if you only pay for childcare in the summer you will get a payout all year round. Thus you won't actually receive more money when your costs are higher, which means you need to try to budget over 12 months. Use the free Budget Planner to help.

• What if I lose my job or have my hours cut to under 16?

  This benefit is for parents who work over 16 hours a week, so you won't be eligible anymore (unless you get new work). You do need to inform the tax credit office or you could have the money reclaimed at a later date, really hitting your cash flow. The tax credit won't be cut off immediately though, you should get a four week grace period.

  The concept is that if you're not working you don't need childcare. Yet there is a scheme to help out-of-work parents with a partner who’s in work and a household income under £20,000 to attend training classes. Direct.gov has more info on the Free Childcare for Training and Learning for Work scheme, also see the Redundancy and Mortgage Arrears Help guides.

For a generalised check-up of whether you’re getting all the help you're due, read the Benefits Check-Up guide.

Step 2: Can you get childcare vouchers?

Childcare vouchers are a little known scheme, which can save many parents with kids aged up to 15, over £1,000 a year on childcare. They need to be offered via employers, but many large and small companies take part.

The key is it enables you to pay for childcare out of your PRE-TAX and National Insurance income. While this doesn’t sound much, the benefit is huge. Most employers work it on a salary sacrifice system, which works something like this (basic rate tax example)...

You give up £1,000 of salary, worth £700ish in your pocket. You get £1,000 of Childcare vouchers. This means you're £300 better off per grand.

Of course, once you no longer need to pay for childcare, you simply get your salary back.

BOTH parents are allowed to get a maximum of £243 per month worth of vouchers meaning some families will gain £1,000s from this over a year. To find out more read the full...

Warning! Childcare vouchers can impact tax credits

If only it were that simple, sadly while childcare vouchers are conceptually great, they interact with the amount of Childcare Tax Credits you're entitled to. So while many gain from the vouchers, some people, especially on lower incomes are WORSE off using the vouchers.

This happens because..

• Vouchers don't count as paying for childcare

  The more you pay in childcare, the more tax credits you're eligible for, but any amount you pay in vouchers, doesn't count towards that. For example if you pay £100 a week for childcare, but use £60 of vouchers, for tax credit purposes you're only spending £40 a week on childcare, so it's this figure you must enter on your Tax Credit claim form.

  You must notify the tax credit office within a month that you start using childcare vouchers, so any changes can be taken into account. You may be fined if you don't.

• Salary sacrifice means you've a lower income

  If you're giving up salary to get vouchers, then for benefit purposes you earn a lower amount, this will increase your eligibility for tax credits.

Plus, read my blog on Ed Balls' reply to my Childcare Agitation fears.

When's it worth using them

Hard and fast rules are very difficult as there are so many variables... but here's some rough guidance.

• If you're not eligible for childcare tax credits. In this case, there's no problem, so if you're a couple where one works under 16 hours a week, or a single parent who does, or your income is too high to qualify, then there's no impact. So go for the vouchers.

• Family income above £36,000? You are likely to be better off accepting childcare vouchers unless you've more than three children.

• Childcare costs above £175 for one child, £300 for two or more? You will always be better off using vouchers for any amount above that, and may be better off for amounts below (the higher your salary the more likely).

• Family income below £42,000? (depending on how many kids you have): Providing you're eligible for tax credits you're likely to be better off getting them than using vouchers if you're earning: under £24,000 (one child); under £30,000 (two kids); under £36,000 (three kids); under £42,000 (four or more kids).

Do remember this is only rough guidance, but that's about as good as it gets. If this impacts you it's important to do a more detailed comparison use the Government’s HMRC vouchers vs. credits calculator to check in detail or call the Tax Credit Helpline on 0845 300 3900.

Step 3. Free childcare for 3 or 4 year olds

There are free ‘early learning’ classes available for all three or four year-olds (starting from the term following your child's third birthday). For at least 38 weeks a year you’re entitled to 12.5 hours a week, although some Local Authorities offer 15 hours a week and it will be 15 hours across England by 2010. Families with a low income may also get free classes for two year olds.

Things may be slightly different in Scotland, Wales and Northern Ireland, call the FIS on the number below to check your entitlement.

In practice this provision is offered at a range of places including Sure Start children’s centres, nurseries, pre-schools and childminders. So if you're paying for childcare, you can swap it for this free provision which could add up to a hefty saving over the year.

Where to find out more

The main source of information in England is the local Families Information Services (FIS), which should be able to tell you about the provision available in your area. Its number is 0800 234 6346. There is no central contact in Scotland, Wales and Northern Ireland, yet the FIS will be able to tell you the telephone number for your area. You can also check if your child qualifies on the DirectGov site.

Step 4. Free holiday classes and activities

Provision of holiday childcare for school-age children is often a real hit to the finances. Often parents either need to lose earning power by taking time off work or pay for professional childcare. An alternative to this is that over the summer, and sometimes during Easter and Christmas, lots of schools offer a range of activities for children, from sports coaching to dance and music sessions.

This is a safe and cheap way to resolve holiday childcare needs and if you need to pay for it, then this can be part of your Childcare Tax Credit application (as long as the provider is Ofsted registered). You can usually pay for the holiday provision with Childcare Vouchers, although it's best to check before booking that the school you've picked allows this.

Places aren’t just open to a school’s pupils, so if your school doesn’t have it, check others.

In summer '09, fourteen thousand schools across England had such courses, many of which offered special summer activities. Schools in Scotland, Wales and Northern Ireland have similar provision.

Where to find out more

The easiest way to find out is to check with your local school or alternatively, give a quick call to the Families Information Service on 0800 234 6346 or visit Direct.gov.