Tax-Free Childcare
Despite the name, Tax-Free Childcare is not a tax break. It is a government top-up account: you pay money in, the government adds 20%, and you pay your nursery or childminder out of it. Around a million eligible families never open one.
What are you actually entitled to?
Put in what you spend and we will show the Tax-Free Childcare top-up and what the funded hours are worth at typical local rates. Nothing is sent anywhere.
Funded hours are worth 38 weeks a year, so the yearly figure is the term-time value. Tax-Free Childcare adds £2 for every £8 you pay in, capped at £500 per child every three months. Settings often charge separately for meals and consumables, which this does not include.
How it actually works
You open an account through the government childcare service. For every £8 you pay in, the government adds £2, so a £500 childcare bill costs you £400. You then pay your provider from that account, and they have to be signed up to receive it (most are; ask).
The top-up is capped at £500 every three months, which is £2,000 a year for each child. If your child is disabled the cap is £1,000 a quarter, £4,000 a year. The cap is per child, not per family, so two children means two accounts and two caps.
You have to reconfirm your details every three months. This is where most people lose the money. Miss the reconfirmation and the top-ups stop.
Who can get it
- Your child is 11 or under. Eligibility ends on 1 September after their 11th birthday. 16 or under if they are disabled.
- You are working, and so is your partner if you have one. Being on parental, sick or annual leave still counts.
- You each expect to earn at least £2,643.68 over the next three months if you are 21 or over, which is roughly 16 hours a week at the National Living Wage. It is £2,256.80 if you are 18 to 20, and £1,664 if you are under 18 or an apprentice.
- Neither of you has an adjusted net income over £100,000. One pound over and you lose the whole thing, which is why some parents increase their pension contributions to stay under.
- You are not claiming Universal Credit or childcare vouchers. Applying for Tax-Free Childcare stops both.
What it can pay for
Any Ofsted-registered provider signed up to the scheme: nurseries, pre-schools, childminders, after-school clubs, holiday clubs and some school-run wraparound care. It does not cover a babysitter or a relative who is not registered.
Find registered childcare near you and ask whether they take Tax-Free Childcare payments before you sign anything.
Questions people ask
How does Tax-Free Childcare work?
You pay into a government childcare account and the government adds £2 for every £8 you deposit, up to £500 every three months. You then pay your registered childcare provider from that account.
What is Tax-Free Childcare worth?
Up to £2,000 a year per child, or £4,000 if your child is disabled. To get the full amount you would need to be paying around £8,000 a year in childcare for that child.
Can I use Tax-Free Childcare and the 30 free hours together?
Yes, and you should. Use the funded hours for the hours they cover, and pay for anything beyond that from the Tax-Free Childcare account.
Can I use Tax-Free Childcare with childcare vouchers?
No. They are mutually exclusive. If you apply for Tax-Free Childcare you must tell your employer to stop your vouchers within 90 days, and you cannot go back to vouchers later.
Does Tax-Free Childcare affect Universal Credit?
Yes. Claiming Tax-Free Childcare ends your Universal Credit award. The Universal Credit childcare element covers up to 85% of costs, which is usually worth more, so work it out before applying.