Over a million families could be missing out on Tax-Free Childcare
Over one million families could be missing out on £1,000s per year in Government childcare help, as a new report for HMRC admits that take-up of the Tax-Free Childcare scheme has been lower than anticipated.
The Government's Tax-Free Childcare scheme essentially gives eligible families 20% off childcare costs, and is worth up to £2,000 a year per child.
HMRC has estimated that 1.3 million families are able to claim, but pensions firm Royal London's analysis of its latest take-up figures shows that only around 1 in 10 of those eligible are doing so.
Around 172,000 families are claiming Tax-Free Childcare according to the most recent Government statistics, leaving around 1.1 million eligible families who aren't claiming – though the number of claims has been climbing from previous years.
And a new report commissioned by HMRC says that "take-up so far has been lower than originally anticipated". The report found that eligible parents weren't claiming due to factors such as a lack of awareness or understanding of the scheme, as well as issues with logging into the Tax-Free Childcare site and making payments. The scheme was plagued with problems when it was first rolled out, primarily due to website issues.
Some families may also be using alternative childcare schemes, such as childcare vouchers.
See our Tax-Free Childcare guide for full info on help paying for childcare.
What is Tax-Free Childcare?
Under the Tax-Free Childcare scheme, parents and carers in the UK can open an account where, for every 80p they deposit, the state adds 20p.
In total, the state can add up to £2,000 per child per year (or up to £4,000 if your child is disabled) – so including what you deposit, you can use the scheme to pay for up to £10,000 of childcare per child each year.
You can only get a maximum top-up of £500 every three months, but the state's extra 20% is added at the point you put money into your Tax-Free Childcare account, not when you spend it – so if you only pay for childcare seasonally, you can put money into the account throughout the year to avoid missing out on any state top-up.
Tax-Free Childcare can be used to pay for all sorts of childcare, including nurseries, playgroups, childminders and after-school clubs. The crucial element is that your childcare provider will need to be registered with a regulator such as Ofsted, and be part of the Tax-Free Childcare scheme.
It's worth noting that some families who are eligible for Tax-Free Childcare will also be eligible for universal credit, which could let you claim back up to 85% of your childcare costs. You can't claim universal credit and Tax-Free Childcare at the same time though, so double check if you'd be better off under universal credit before applying – there's more info in our Tax-Free Childcare guide.
Am I eligible for Tax-Free Childcare?
The scheme's available for working parents of children up to and including the age of 11 (or until they turn 17 for disabled children).
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.
You'll still be eligible if you're self-employed (as long as your average income over three months meets the £131 per week minimum), or if you're on paid sick leave or are unable to work and claim certain benefits.
If you're on unpaid or paid statutory maternity, paternity or adoption leave, this also counts as being in work – so you can still claim from the scheme for any older siblings.
See our Tax-Free Childcare guide for full eligibility information.
How do I apply?
If you're eligible, you'll need to create an online childcare account via the Government's Tax-Free Childcare site. It should take about 20 minutes to set up, and you'll need your national insurance number, as well as 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 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.
What does HMRC say?
An HMRC spokesperson said: "Tax-Free Childcare is a great offer for working parents, and more and more families are benefiting from the offer, with numbers doubling from this time last year.
"We are continuing to promote Tax-Free Childcare to parents and are working with stakeholders to raise awareness and encourage more parents to apply.
"We're also using our research to make improvements to the customer journey, making it easier for parents to access information about Tax-Free Childcare and to apply for the support, addressing key barriers identified."
Becky O'Connor, personal finance specialist at Royal London, said: "The results of this survey two years after Tax-Free Childcare was introduced reveal a widespread lack of awareness and confusion.
"Childcare is an expensive and necessary cost for working parents. The Government needs to do more to boost awareness and understanding of the benefits of this scheme, which can save parents thousands of pounds off a full-time pre-school childcare bill every year."
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