Tax-Free Childcare

Tax-Free childcare can be a wonderful option for you and your family to save money on childcare costs, however, we understand that the process can feel a little overwhelming.

We’ve put together a step-by-step guide to help get you started. In it, we’ll explain what Tax-Free childcare is, how it works, how to apply, and how to make your childcare payments.

Tax-Free Childcare is a government initiative designed to help working parents with the cost of childcare.

You open an online account with the government (though the government website, GOV.UK) which you can pay into to cover the cost of childcare with a registered provider. For every 80p you (or someone else) pays in, the government will top up an extra 20p. This is equivalent of the tax most people pay - 20% - which is how the scheme got its name.

The government will top up the account with 20% of childcare costs up to a total of £10,000 - the equivalent of up to £2,000 support per child, per year (or £4,000 for disabled children).

The good news is that if you’re eligible to apply, you can apply for all your children at the same time, provided they live with you and are of the right age. If your child is adopted, they are also eligible. Your children need to be under the age of 12, although for children with disabilities the age limit is 17 because their childcare costs tend to remain high for longer.

In order to apply, you first have to check that you are eligible. You can do this here.

Your eligibility depends on the following factors:

• if you are working
• your income (and your partner’s income, if applicable)
• your child’s age and circumstances
• your immigration status

It’s important to consider whether Tax-Free Childcare is the right scheme for you and your family if you’re already claiming Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers. Every family is different and requires different forms of support. To find out which scheme serves you best, you can use this helpful calculator.

*Note that If your Tax-Free Childcare application is accepted, your Working Tax Credit or Child Tax Credit will stop immediately. Once this happens, you won’t be able to receive them again.

Now that you’ve checked your eligibility and decided that the Tax-Free Childcare scheme is right for you and your family, it’s time to apply, which will take about 20 minutes.

You’ll need your details (and your partner’s, if applicable), including your:

• National Insurance number
• Unique Taxpayer Reference (UTR) if you’re self-employed

During this application process, you’ll discover whether you’re eligible for Tax-Free Childcare. If you live in England, you’ll also find out whether you’re eligible for 30 hours free childcare. It’s possible that you’ll find out straight away, but it can take up to a week.

Your chosen childcare provider needs to be approved with the government in order for you to be able to pay them with your Tax-Free account.

The accepted types of childcare providers are:

• registered childminder, nanny, playscheme, nursery or club
• childminder or nanny with a registered childminder agency or childcare agency
• registered school
• home care worker working for a registered home care agency

The rules about how childcare providers become approved are different depending on where you live. You can check if a childcare provider is approved or search for one in:

• England - through Ofsted or the list of registered childminder agencies
• Wales - through Care Inspectorate Wales
• Scotland - through the Scottish Care Inspectorate
• Northern Ireland - through the local early years team register

If you want to claim 30 hours free childcare in England, the provider will also need to be on an Early Years Register with Ofsted or with a registered early years childminder agency – speak to your provider about this.

Once your application has been approved, you’ll be able to pay your chosen childcare provider (tax free) from your government account! You can log into your account here, and once the money is shown as ‘cleared funds’, you can make your payment. The payments should then show in your childcare provider’s account within 24 hours, depending on their bank.