Tax-free childcare

Tax-Free Childcare

How it works and how to benefit

The Government's Tax-Free Childcare scheme offers up to £2,000 a year per child towards childcare costs, but fewer than one in five of the 1.3 million families eligible for the help have signed up. Here's how the scheme works and how to benefit.

Tax-Free Childcare & Coronavirus 

  • Your tax-free childcare entitlement won't be cut if you're temporarily earning less as a result of coronavirus. Normally, you'd need to earn a minimum income of £140/week. However, new rules ensure that if you're temporarily earning less because you've been furloughed then you'll still be eligible based on what you'd normally earn.

  • Usually earn above £100,000/year but have seen your income drop in the past year? You may now be eligible to Tax-Free Childcare. If you or your partner earn £100,000 or more per year, normally this guide isn't for you as you won't be eligible. However, if you've seen your income drop - perhaps due to being furloughed - you could now be eligible for the boost as long as your (and your partner's if you have one) annual salary is below £100,000. See below for full details on how to apply. 

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Before you apply for Tax-Free Childcare - check what else you could get

Before you apply for Tax-Free Childcare, make sure you're not missing out on even MORE help.  

First see if you even need to pay for childcare – you can get up to 30 hours per week for free

ALL three to four-year-olds in the UK can get at least 10 hours of free childcare or pre-school education every week, but it varies from nation to nation. See how to get up to 30 hours' free childcare for full details. But in a nutshell...

England

  • 15 hours for free for ALL three to four-year-olds. Each child gets 570 free hours a year (usually taken as 15 hours a week over 38 weeks).
  • Another 15 hours for free if you and your partner (if you have one) each earns less than £100,000/year. To be eligible you also each have to earn an average of at least £140 a week. 

Northern Ireland

  • Northern Ireland doesn't offer free childcare hours, instead three and four-year-olds can get funded pre-school education place through the Pre-School Education Programme
  • This is available term-time either on a full-time (22.5 hours/week) or part-time (12.5 hours/week) basis, for 38 weeks of the year. 

Scotland

  • Each child gets 16 hours for free a week.
  • Plus, you may be able to get more funded hours in your area, or access them earlier as the Scottish Government is adding more funded hours. Visit your local council's website to find out what is available in your area. 

Wales

  • Each child gets at least 10 hours a week and up to 30 hours in some parts. 
  • The 30 hours is made up of a minimum of 10 hours of early education a week and a maximum of 20 hours a week of childcare. 
  • The amount of childcare you get depends on how much early education your local authority offers.

Family income under £40,000ish? Check if you can get help with childcare costs via universal credit - it's worth more than Tax-Free Childcare

If you're working (or both working, if in a couple) and you pay for childcare, you could claim back up to 85% of your childcare costs through universal credit. So before you even consider Tax-Free Childcare it's worth checking if you're eligible for this help, as it's likely it'll cover more of the cost. 

Am I eligible?

Who's entitled is complex, but as a rule of thumb, if you've household income under £40,000 a year, it's worth taking 10 minutes and using our Universal Credit and Benefits Calculator to check if you're eligible. Some with a higher household income but high childcare costs may even be able to get it too. 

How much can I get? 

You can apply for help with childcare costs under universal credit if you are on a low income, no matter how many hours you work. Under universal credit you can get back up to 85% of your costs, to a maximum of £646.35 a month for one child, and a maximum of £1,108.40 monthly for two or more children. 

Check how much you could be due using our Universal Credit and Benefits Calculator or call the free universal credit helpline on: 0800 328 5644. 

Important:

  • You can claim universal credit or tax credits AND get the 30 hours' free childcare in England at the same time.
  • You CAN'T claim Tax-Free Childcare alongside universal credit. 
  • You can use universal credit with childcare vouchers, the scheme which Tax-Free Childcare replaced, but which is still available for some.

Want the FULL lowdown on how much universal credit you can get? 

Our Universal Credit guide has all the ins and outs of who qualifies, how much you can get, and answers the most common curly questions around all the various rules and exclusions. 

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Tax-Free Childcare - the seven need-to-knows

  1. You can get up to £2,000 per child each year towards childcare costs

    The Government-backed Tax-Free Childcare scheme is designed so that for every 80p you put into your Tax-Free Childcare account, the state will add 20p. It essentially gives you basic-rate tax back on your bill – hence the scheme's name. 

    In short, this is what you can get:

    • Eligible parents can claim up to £2,000 per child per year. In total you can use the scheme to help pay for up to £10,000 of childcare per child each year – giving you an extra £2,000 per child (up to £4,000 if your child is disabled) each year.

      You open an online Tax-Free Childcare account using your Government Gateway ID and for every 80p you pay in, the government will top up your account. A quick and easy way of making sure you put in the right amount is to look at your childcare bill and multiply it by 0.80. This gives you 80% of the total bill, with the final 20% appearing as a top up. 

      Here's an example...If your childcare bill was £500/month, you'd multiply 500 x 0.80 to get £400. You'd put £400 into your Tax-Free Childcare account and the remaining £100 (20%) will then be picked up by the Government; across the year, this would cut your £6,000 annual costs to £4,800
      .
    • There is a £500 quarterly cap to the government top-up. Parents can only get a maximum Government top-up of £500 every three months – which could impact those with higher childcare bills. 

    Tip: If you have seasonal childcare costs, put money into your account throughout the year, accruing the full top-up as you go. Then, spend it only when you need to – thus avoiding the £500 three-month limit.

  2. The scheme is available to ALL workers incl the self-employed

    You will qualify for Tax-Free Childcare if you are in work, including if you're self-employed. If you have a partner, you both need to be in work to qualify.

    However, there are some circumstances where you'd still be eligible even if you are not working. These include:

    • You are on sick leave
    • You are on annual leave 
    • You are on shared parental, maternity, paternity or adoption leave
    • You or your partner is in work and the other isn't able to work and receives certain benefits such as: incapacity benefit, carer's allowance or the severe disablement allowance, for more info see what benefit counts below.
  3. Your child must be 11 or younger (or 17 if your child has a disability)

    The scheme's available to parents of children up to and including the age of 11 (or until they turn 17 if you've children with disabilities). This is lower than the age limit of 15 for the Childcare Vouchers scheme but it's the same for children with disabilities.

  4. You'll need to earn at least £140 a week but less than £100,000/year

    To qualify, you (and your partner, if you have one) need to be working and:

    • Each earn a minimum of £140 a week – this is the equivalent of 16 hours/week at the national minimum wage for 25-year-olds or over from April 2020.

    • Each earn less than £100,000 a year. This means if both partners earn £99,999 you can qualify, but if one earns £30,000 and the other £150,000 you won't. 

    Your partner doesn't have to be the other parent - it's all based on who you live with so if you are a single parent but then your new partner decides to move in, if they don't meet the criteria above you would then no longer be able to claim Tax-Free Childcare.

    What if I am self-employed? 

    • If you're self-employed as long as on average in the next three months or across the whole current tax year you meet the £140 a week minimum, you will qualify. 

    • If you've been self-employed for less than 12 months, the minimum income requirement doesn't apply to you.
  5. You can use it for all sorts of childcare – including after-school clubs

    No matter what sort of childcare you are choosing – the crucial element is that your provider must be registered with the Tax-Free Childcare scheme as well as with a regulator such as Ofsted, the Early Years Register or the Childcare Register to count as childcare.

    So far, more than 68,000 childcare providers have signed up. If you have a particular provider in mind, it's worth checking that it's registered before you open your Tax-Free Childcare account.

    Tax-Free Childcare covers your usual range of registered providers, such as:

    • Breakfast clubs and after school clubs
    • Childminders
    • Nurseries
    • Playgroups
    • Nannies
    • Au-pairs

    Note: All sorts of holiday activities are included too, such as tennis, football and art clubs – and even some holiday camps. When you log in to your account, you'll be able to see details of all registered providers. If your provider's on there, you'll be able to send payments directly through your account. 

  6. How it works & how to sign up

    If you're eligible, you'll need to create an online childcare account via the Government Tax-Free Childcare site. It should take about 20 minutes to set up, and to do this you'll need your national insurance number to hand (you'll also need your unique taxpayer reference if you're self-employed).

    • How do I pay in? You'll be able to pay money by setting up a standing order, or by making a payment from your bank account (using your debit card). Only one parent can open the account – though both can, of course, use it – so you'll need to decide in whose name you open it.

    • When does the top up appear? The Government should top it up with the extra cash the same day. So put in £80 on Monday, and it should be boosted by £20 to £100 within hours.

      Recent tweaks to the system mean that the fastest way for money to arrive in your account is via bank transfer – approx two hours. You can still pay in using direct debit but the money will show as 'available funds' sooner if you use bank transfer. The Government will then top up your account automatically. Others, such as grandparents or family friends, can also put cash in.

    • How quickly do providers receive the funds? You can use the money to pay your childcare provider as soon as your account shows 'available funds'. You do this by selecting your provider and transferring the money via your Tax-Free Childcare account.

      If you make the payment before 2.30pm then the money should arrive in the provider's account the same day. After 2.30pm, or on a weekend or bank holiday, then the money will arrive in their account on the next working day. However, in some cases it can take up to three working days, so if possible try to plan your payments to avoid missing your childcare provider's deadline.
  7. You MUST reconfirm every three months or risk missing out on the top up

    One of the key features of the Tax-Free Childcare scheme is that you need to reconfirm that you're eligible four times a year. The process is quick and simple and you'll be given timely reminders when you're due.

    If you don't reconfirm by your deadline, and your childcare bill is due, you'll have to pay the amount in full without the government top-up. You can reconfirm after you missed your deadline but it can take some time for the system to update so it means you might miss out on some top ups.

    You can easily check if you're due to reconfirm by logging into your account. Once you're signed in, you'll see a reminder that you need to reconfirm by clicking a box saying your circumstances haven't changed. 

Vouchers vs Tax-Free Childcare: Which is better for me (if you still have the option to choose between the two)?

The Tax-Free Childcare scheme replaced the Childcare Vouchers scheme, which closed to new applicants in October 2018. If you were signed up for vouchers before the scheme closed, you can continue to get them as long as you stay with the same employer, and it still offers them.

At a glance: Vouchers or Tax-Free Childcare?

Some people receiving vouchers might be better off claiming Tax-Free Childcare instead. If you're thinking of switching, compare what you'd get with each scheme because you can't go back to vouchers once you've moved to Tax-Free Childcare. 

Whether you'll be better off depends on how much you earn and pay in tax and for childcare – our handy infographic below will help determine which scheme's best for you.

tax free childcare infographic

See if you win or lose with Tax-Free Childcare

Tax-Free Childcare wins for:

Parents with more than one child and high childcare costs, as the help available goes up with the number of children. The limit for childcare vouchers is per parent and doesn't factor in the number of kids you have.

Self-employed people or couples who earn less than £100,000 each, as they're eligible for Tax-Free Childcare, but didn't qualify for childcare vouchers.

Childcare Vouchers win for:

Couples where one parent doesn't work, as they're not eligible for Tax-Free Childcare unless the non-working partner receives a qualifying benefit, whereas with childcare vouchers only one parent needs to work.

Basic-rate taxpayer parents with total childcare costs of £9,336/year or less. Under this amount, the saving you make with childcare vouchers exceeds the saving you can make with Tax-Free Childcare.

Higher-rate taxpayer parents with total childcare costs of £6,252/year or less. Under this amount, the saving you make with childcare vouchers exceeds the saving you can make with Tax-Free Childcare.

Higher earners, as anyone earning £100,000+ a year (or in a couple where one earns £100,000+ a year) isn't eligible for the Tax-Free Childcare scheme, while there is no income limit with childcare vouchers.

Here are a couple of quick examples to see how it works in practice...

Low childcare-usage family  

Olly Onechild and his wife spend £500 on childcare across the MONTH for after-school clubs and pick-ups etc.

If both are basic-rate taxpayers using vouchers, this would cost them £344 – a saving of £156 compared with not using them. But if they used Tax-Free Childcare, it'd cost them £400 – £56 more expensive than vouchers.

If both are higher-rate taxpayers using vouchers, this would cost them £396 – a saving of £104 compared with not using them. And if they used Tax-Free Childcare, it'd cost them £400 – £4 more expensive than vouchers.

High childcare-usage family 

Molly Muchcare and her wife have two toddlers and spend £2,000 on childcare (in total for both toddlers) across the MONTH for nursery and pick-ups etc.

If both are basic-rate taxpayers using vouchers, this would cost them £1,844 – a saving of £156 compared with not using them. But if they used Tax-Free Childcare, it'd cost them £1,668 – £176 cheaper than vouchers.

If both are higher-rate taxpayers using vouchers, this would cost them £1,896 – a saving of £104 compared with not using them. And if they used Tax-Free Childcare, it would still cost them £1,668 – £228 cheaper than vouchers.
 

Use the childcare calculator to check your exact circumstances

If you want a personalised assessment, you can use the Government's childcare calculator to see what help you're entitled to and how much you could get. 

To help you gauge which option's best for you, we've also produced a table looking at different family circumstances to see which scheme is the winner.

We've examined savings at a level of £10,000 childcare costs per child, per year, and assessed who'd win and under which scheme - see the dropdown below for full breakdown. 

  • Childcare Vouchers vs Tax-Free Childcare – how much could you save in 2021/22? (assumes £10,000 childcare costs per child)

     

    CHILDCARE VOUCHERS MAXIMUM TAX & NI SAVING (1)

    TAX-FREE CHILDCARE – MAXIMUM GOVERNMENT CONTRIBUTION

      Assumes you signed up after April 2011 One child Two children (2)
    SINGLE, EMPLOYED PARENT
    No income tax payable None £2,000 (4) £4,000 (4)
    Basic-rate taxpayer £933 (3) £2,000 £4,000
    Higher-rate taxpayer £625 £2,000 £4,000 (5)
    Top-rate taxpayer £623 None None
    SINGLE, SELF-EMPLOYED PARENT
    No income tax payable None £2,000 (4) £4,000 (4)
    Basic-rate taxpayer None £2,000 (4) £4,000 (4)
    Higher-rate taxpayer None £2,000 £4,000 (5)

    Top-rate taxpayer
    None None None
    COUPLE: BOTH EMPLOYED AND ELIGIBLE FOR VOUCHERS
    No income tax payable None £2,000 (4) £4,000 (4)
    Basic-rate taxpayer £1,866 (3) £2,000 £4,000
    Higher-rate taxpayer £1,250 £2,000 £4,000 (5)
    Top-rate taxpayer £1,246 None None
    COUPLE: ONE EMPLOYED, ONE SELF-EMPLOYED
    No income tax payable None £2,000 (4) £4,000 (4)
    Basic-rate taxpayer £933 (3) £2,000 £4,000
    Higher-rate taxpayer £625 £2,000 £4,000 (5)
    Top-rate taxpayer £623 None None
    COUPLE: BOTH SELF-EMPLOYED
    No income tax payable None £2,000 (4) £4,000 (4)
    Basic-rate taxpayer None £2,000 £4,000
    Higher-rate taxpayer None £2,000 £4,000 (5)
    Top-rate taxpayer None None None
    COUPLE: ONE EMPLOYED, ONE NOT WORKING
    No income tax payable None None None
    Basic-rate taxpayer £933 (3) None None
    Higher-rate taxpayer £624 None None
    Top-rate taxpayer £620 None None
    Table uses 2020/21 income tax thresholds. (1) The maximum saving doesn't change depending on the no. of children. Amounts are a MAXIMUM annual gain based on salary sacrifice. (2) Amount increases by £2,000 for each child. There is no maximum. (3) You can only claim vouchers if you earn the national minimum wage, about £14,924 for 35hrs/week if you're over 21. (4) You need to be working, classed as earning at least £140/week. (5) Assumes earning less than £100,000 threshold.

What to do if Tax-Free Childcare is better for you

If you want to move over to the Tax-Free Childcare scheme, you just need to apply. Once you've successfully done so, you'll need to give your employer written notice that you want to leave its voucher scheme permanently. This needs to be done within three months. The easiest way to do this is to call your voucher provider directly to ask it to stop your membership of the scheme.

Once you've left the voucher scheme, you can use stockpiled vouchers alongside Tax-Free Childcare to pay towards your childcare costs. Make sure you check expiry dates with the voucher provider.

What to do if sticking with vouchers is better for you

If you've gone through the infographic and the comparison table above and have worked out you're better off staying with vouchers, you can continue to get them as long as you stay with the same employer, and it still offers the vouchers. But it's vital to to know that once you move away from vouchers, you can't go back.

Tax-Free Childcare FAQs

  • Yes. You can usually get Tax-Free Childcare if you (and your partner, if you have one) are on shared parental, maternity, paternity or adoption leave. 

    If you’re on adoption leave, you cannot apply for the child you’re on leave for unless you’re going back to work within 31 days of the date you first applied.

  • Although the rules say both parents need to be in work, you'll still be eligible for a childcare account if you or your partner is in work and the other isn't able to work and receives any of the following benefits:
     

    • Incapacity benefit or long-term incapacity benefit
    • Severe disablement allowance
    • Carer's allowance
    • Contribution-based employment and support allowance
    • National insurance credits (because of incapacity or limited capability for work)
  • If you're not currently working, but you're due to start or restart work in the next 31 days, you can apply for Tax-Free Childcare. 

  • When you log in to your account, you'll be able to see details of all registered providers. If your provider's on there, you'll be able to send payments directly through your account to the provider's bank account via the BACS system. 

  • Yes. Single parents can also benefit from Tax-Free Childcare. Just bear in mind, your partner doesn't have to be the other parent - it's all based on who you live with, so if you are a single parent but then your new partner decides to move in, if they don't meet the criteria above you would then no longer be able to claim Tax-Free Childcare.

  • If you've lost out as a result of the technical problems that have previously affected the Tax-Free Childcare website, you can reclaim your costs

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