Tax-Free Childcare

Government scheme gives you up to £2,000 per child

Tax-free childcare

Tax-Free Childcare offers eligible families up to £2,000 a year per child towards childcare costs, including after-school clubs and activities. But many of the 1.6 million families eligible for this help aren't claiming. Here we explain how the scheme works and how you can sign up.

In this guide

Tax-Free Childcare explained: Eight need-to-knows

The Government-backed Tax-Free Childcare scheme essentially gives eligible families 20% off childcare costs. You open a centralised account and the Government adds 20p for every 80p you pay in. You then pay your childcare provider from that Tax-Free Childcare account. 

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

    Before you apply for Tax-Free Childcare, make sure you're getting the help you're entitled to.

    All three to four-year-olds in the UK can get free childcare. In England, each child gets 570 free hours a year (usually taken as 15 hours a week over 38 weeks). Plus, working households are usually entitled to double that as long as you (and your partner if you have one) each earn an average of at least £131 a week – the equivalent of at least 16 hours a week on the living wage from April. Households where a parent earns £100,000+ a year are not eligible.

    In Scotland, everyone gets 16 hours a week, for Wales it's at least 10 hours a week (up to 30 hours in some parts), while in Northern Ireland it's up to 22.5 hours a week. See how to get up to 30 hours' free childcare for full details.

    However, beware of add-on costs and possible price rises as providers look to recoup some of the costs.

  2. Family income under £40,000ish? Check if you're entitled to universal credit childcare help

    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. 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. However, if you get universal credit, you won't be able to get Tax-Free Childcare.

    Who's entitled is complex, but as a rule of thumb, if you've family income under £40,000/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 you can get – and if you're entitled to it at all – depends on your circumstances, but you could get up to £646/month for one child, and up to £1,108/month if you've two or more children.

    You can claim universal credit or tax credits and get the 30 hours' free childcare at the same time.  

    You can also use universal credit with Childcare Vouchers, the scheme which Tax-Free Childcare replaced, but which is still available for some. But as you'll only be able to claim on the costs not covered by the vouchers, you may be better off not using the vouchers at all, as universal credit will likely contribute more to your costs. See our Universal Credit guide for more info. 

  3. Tax-Free Childcare gives a boost of up to £2,000 per child each year

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

    In total you'll be able to use the scheme to help pay for up to £10,000 of childcare per child each year – so you could get an extra £2,000 per child (up to £4,000 if your child is disabled) each year.

    Say your childcare bill was £500/mth... you'd pay £400/mth with the remaining £100 of the bill picked up by the Government; across the year, this would cut your £6,000 annual costs to £4,800.

    Once your childcare bill exceeds the Government maximum, there's no more financial support. If your childcare bill for one child is £1,000/mth, you'd pay £800 and have £200 paid for – after 10 months, once the £2,000 maximum support has been reached, you'll then have to pay full whack.

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

    Tax-Free Childcare is open to all qualifying parents, unlike Childcare Vouchers, which can only be used by people who signed up to the scheme before it closed (and only if a workplace offered them). 

    If you work for yourself, you've previously not been able to take advantage of Government schemes to cut the cost of childcare, but the Tax-Free Childcare scheme is open to self-employed people, and anyone else who's working and not getting Childcare Vouchers, allowing them to take advantage of the 20% tax perk.

    However, if you have a partner, you both need to be in work to qualify – so if you're self-employed and your partner doesn't work, you won't be able to use the scheme.

    Single parents can also benefit from Tax-Free Childcare. 

  5. Your child must be 11 or younger

    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.

  6. Both partners in the household must be working & you'll need to earn at least £131 a week

    To qualify, you (and your partner, if you have one) need to be working and earning a minimum of £131 a week from April – this is the equivalent of 16 hours/week at the national minimum wage for 25-year-olds or over. Each parent also needs to earn less than £100,000 a year.

    If you're self-employed and your income varies hugely on a weekly basis, it doesn't matter; as long as your three-monthly average meets the £131 a week minimum. 

    If you've been self-employed for less than 12 months, the minimum income requirement doesn't apply to you.

    • If you're on paid or unpaid statutory maternity, paternity or adoption leave, it still counts as being in work, so you can still benefit from the scheme. You can't apply for the child that you're on parental leave for, but you can apply for other children you have, so you can still use the scheme for older siblings.

    • 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 is not able to 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)
    • Yes, if you're on paid sick leave, it is available.

    • 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. 

  7. You can use it for all sorts of childcare – including after-school clubs

    Tax-Free Childcare covers your usual range of providers, such as breakfast clubs, nurseries, playgroups, nannies and au-pairs. But what a lot of parents don't realise is that all sorts of holiday activities are included too, such as tennis, football and art clubs – and even some holiday camps.

    The crucial element is that your provider must be registered with a regulator such as Ofsted, the Early Years Register or the Childcare Register to count as childcare  and it must also be registered with the Tax-Free Childcare scheme. 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.

    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.

  8. How the Tax-Free Childcare scheme 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).

    You'll be able to pay money in using your debit card, by setting up a standing order, or by making a payment from your bank account. 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.

    Every three months, it's also necessary to 'reconfirm' your eligibility. You need to do this using your childcare service account, and simply have to click a box saying your circumstances haven't changed. The Government says you'll be reminded to do this.

    • The Government should top it up with the extra cash the same day. So put in £80 on Monday, and it should be boosted to £100 within hours. However, you must let the funds clear overnight before you can use them to pay for your childcare, which you do by selecting your provider and transferring the money via your Tax-Free Childcare account. Others, such as grandparents or family friends, can also put cash in.

    • We've been told by MoneySavers that it can take up to five working days (sometimes longer) for funds to reach the childcare provider, and that payments are sometimes not made by the system if they're due to go out on a weekend or bank holiday – so if you can, try to plan your payments to avoid these issues.

    • You'll be able to spread the cost of childcare, eg, pay in more some months to cover the cost of the extra childcare needed during holiday periods. However, be aware that parents can only get a maximum top-up of £500 every three months – this affects those with higher childcare bills.

      If you have seasonal childcare costs, put money into the 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.

    • 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.

I still use vouchers but is Tax-Free Childcare better for me?

The Tax-Free Childcare scheme replaced the Childcare Vouchers scheme, which closed to new applicants on 4 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.

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.

See where you fall under the Tax-Free Childcare scheme:

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 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 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+ (or in a couple where one earns £100,000+) 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 could work in practice...

  • 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.

  • 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 for individual figures

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.

  • If you want to break this down even further we've produced this 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...

    Childcare Vouchers vs Tax-Free Childcare – how much could you save in 2019/20 (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 £624 £2,000 £4,000 (5)
    Top-rate taxpayer £620 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 £1,248 £2,000 £4,000 (5)
    Top-rate taxpayer £1,240 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 £624 £2,000 £4,000 (5)
    Top-rate taxpayer £620 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 2019/20 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 £14,014 for 35hrs/week if you're over 21. (4) You need to be working, classed as earning at least £131/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.

You can't move to a new employer whose staff are still getting vouchers and continue with them. Once you move away from vouchers, you can't go back.

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