Tax-Free Childcare

The tax-free childcare scheme is open to all working parents with children under the age of 12 and this includes parents who are self-employed.

Under the scheme, for every £8 that a parent contributes to the scheme, the government will instantly top it up with an additional £2. The government will contribute up to £2,000 per year for each child, though this is restricted to a maximum of £500 per quarter; to benefit from the full £2,000 per year, parents would therefore need to contribute £2,000 per quarter, i.e., the full £8,000 cannot be contributed in one go at the end of the year as this would only be eligible for £500 of government top-up for that quarter. The funds must be used to pay for approved childcare, which includes registered childminders, nannies, nurseries, playschemes and after school or holiday clubs.

A parent is eligible for the scheme if they are employed for more than 16 hours per week and earning at least the national minimum wage or living wage but less than £100,000 per year.  The minimum wage restriction does not apply to those who have been self-employed for less than 12 months.

It is important to note that tax-free childcare cannot be claimed at the same time as receiving childcare vouchers from an employer nor any form of tax credits such as working tax credit, child tax credit or universal credit. In these scenarios, it is essential to use the government’s childcare calculator to identify which benefit(s) work best for your specific situation. Those that are employed or operating a business through a limited company need to be aware that the childcare vouchers scheme closed to new applicants from 4 October 2018. Childcare vouchers can continue for those that were in the scheme prior to 4 October 2018 so if you were already making use of the scheme before that date and would be better off under that scheme than the newer tax-free childcare scheme, it makes sense to continue with the childcare vouchers.  Parents switching from childcare vouchers to tax-free childcare must give formal notice to their employer within 90 days so that the employer is aware of the need to cease issuing childcare vouchers.

To participate in the tax-free childcare scheme, parents must first register for a childcare account here. You will need your Government Gateway login details if you have them and if not, this will need to be set up first before moving onto the childcare account registration process.  There were many teething problems with the registration process within the first few months of the scheme being rolled out but we understand that these have now been resolved and it should be fairly straightforward to set an account up. One an account has been set up, parents can start to pay their approved childcare provider straight away from the account.

Further detailed guidance on tax-free childcare is available here.