Tax-Free Childcare

You cannot use the Tax-Free Childcare scheme if you already claim Universal Credit or Tax Credits. If you do claim these benefits and you create a Tax-Free Childcare account, these benefits will stop!
It is likely, although not a guarantee, that if you are eligible for assistance with childcare costs via Universal Credit or Tax Credits that they will provide more financial assistance.
This scheme has replaced the Childcare Voucher scheme operated through employers. No new applications for this scheme can be made after 2018.

How Does it Work?

With the Tax-Free Childcare scheme, you open an account which you pay money into which can then be used to pay for your childcare costs. For every 80pence you pay in, the government pay in 20pence. So, if you pay in £500, the government will pay in £100. This 20% payment by the government is equivalent to the basic rate of income tax, which is why it is called Tax-Free.
One way of using the system is to work out how much your childcare costs are and then multiply that figure by 0.8. That will tell you how much you should pay, with the other 20% being topped up the government. For example, if your monthly childcare costs are £800, you would multiple 800 by 0.8 giving you £640. The remaining 20% or £160 would be paid into your account by the government.
Another way to use the system is to pay in your childcare costs in full and then get 20% back. You can then choose to use this in the future reducing how much you need to add into the account in the future.

How Much?

The maximum amount you can get back from the government is £2,000 per year per child, or £4,000 if your child has a disability. That means, you can get 20% back on up to £10,000.
There is a quarterly limit of £500 though. This means that you can’t get more than £500 back from the government in a 3-month period. It is advisable to top up your account throughout the year in order to avoid this.
For example, your annual childcare costs are £7,200 a year. If you put in £3,600 twice per year because of the quarterly cap you will only get £500 from the government instead of £720 which is 20% of the amount. If you paid in £1,800 four times a year you would get £360 back from the government each time. This is £440 more over the year than paying it in two larger blocks.

Eligibility

You can claim Tax-Free Childcare if you are employed or self-employed. If you’re part of a couple, then usually both of you will need to be working. This includes being off work sick or being on maternity, paternity or adoption leave.

If you’re part of a couple only one of you needs to work if the other is; in prison, in hospital, claiming Carer’s Allowance, or incapacitated.

Incapacitated means you or your partner receives one of the following:

housing benefit (HB) with a disability premium, or a higher pensioner premium;
housing benefit with a childcare earnings disregard because the other member is ‘incapacitated’ under the HB regulations
disability living allowance (DLA);
personal independence payment (PIP)
armed forces independence payment (AFIP)
attendance allowance (AA);
severe disablement allowance;
increase of disablement pension under Section 104 Contributions and Benefits Act 1992;
incapacity benefit at the short-term higher rate or the long-term rate;
industrial injuries benefit with constant attendance allowance;
war disablement pension with constant attendance allowance or mobility supplement;
a vehicle under the Invalid Vehicle Scheme.
contributory employment and support allowance (CBESA) or a limited capability for work credit (from 1 May 2012) where entitlement to that allowance, that credit, statutory sick pay (SSP) or short term higher rate incapacity benefit, long term incapacity benefit or severe disablement allowance has existed for a period of 28 weeks comprising one continuous period or two linked periods (provided that, if the person received statutory sick pay, they also met the relevant contribution conditions);

Your child must be aged 11 or younger, or 16 or younger if they have a disability. The scheme is available until the September after your child turns 11, or 16.

You need to earn at least 16 hours times the National Minimum Wage for your age. For those 23 and older this is £10.42 per hour or £166.72 per week or £722.45 per month.

If you’re self-employed then you, and your partner if you have one, must expect to earn £21,67.36 over the next 3 months to qualify. That’s the same as the figures mentioned above.

If you’ve been self-employed for less than 12 months, these figures don’t apply but will after 13 months.

You also need to earn less than £100,000 per year. This isn’t a combined figure for you and your partner. If only one of you earns over £100,000 a year you can’t access the scheme.

What Can I Use the Money For?

As long as your childcare provider is registered with the Tax-Free Childcare Scheme, and is regulated by Ofsted, the Early Years or Childcare Register, you can use it however you wish.
This means you can use the money for holiday activities not just childminders or nurseries. It can also include nannies and au-pairs.

How to Apply?

You can create an account online here.

Only one parent can open the account, although both parents can pay money into it.

You can’t set up a Direct Debit to pay into the account, but you can set up a Standing Order or move money using a direct bank transfer. Other people can also pay money into the account, like family members. The government should top up the funds the same day but if money is added after 2.30pm or on a weekend or bank holiday it might not show up until the next working day.

You need to confirm your eligibility every 3 months. This is done online, and you will be sent reminders to do so.