Tax free childcare
Last reviewed: February 2022
Tax-Free Childcare is a Government scheme to help working families with their childcare costs.
Parents use online childcare accounts to pay their registered childcare providers directly. For every £8 parents pay in to these accounts, the Government will add £2. The total amount in the account can only be spent on childcare. Parents can receive up to £2,000 in Government support per child, per year, or £4,000 if your child is disabled.
The system is quick and simple for parents and childcare professionals to apply for and use. A provider will need to sign up for Tax-Free Childcare to be able to receive payments from any of their customers via the scheme.
If you get tax credits or Universal Credit your entitlement to tax credits or Universal Credit will end if you apply for Tax-Free Childcare. Seek professional advice to find out which childcare funding is best for you.
How does it work?
Parents could get a Government contribution of up to £2,000 per child, per year, or £4,000 if your child is disabled, to go towards their childcare costs.
Parents will have an online account – just like a bank account – which they can use to pay childcare professionals. They’ll be able to track how much they’ve paid in and how much they’ve spent for each child. The top up will be added into the account on the same day, and the total amount will be available to pay for childcare.
For childcare professionals:
You can sign up for Tax-Free Childcare, allowing parents to pay directly to your bank account. Parents in Tax-Free Childcare should find it works in the same way and at the same speed as making a payment via an online bank account.
Each child will have a unique reference number, so you’ll be able to identify which payments cover which children.
Who is eligible?
Parents could be eligible for Tax-Free Childcare if they:
- Are both working (or on parental leave, sick leave or annual leave)
- Are both earning at least 16 times the hourly rate of the National Minimum Wage. This is 142.56 per week (from April 2020) for a person age 23 or over
- Each earn no more than £100,000 per year
- If you’re not currently working, you may still be eligible if your partner is working, and you get Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or contribution-based Employment and Support Allowance
- You can apply if you’re starting or re-starting work within the next 31 days.
To be eligible for Tax-Free Childcare, you (or your partner if you have one) must have a National Insurance number and at least one of the following:
- British or Irish citizenship
- Settled or pre-settled status or been living in the UK before 1 January 2021 with the right to reside
- permission to access public funds
If the claimant or partner is temporarily earning less than 16 x national minimum wage because of coronavirus, they may still be eligible. They must be furloughed through the Coronavirus Job Retention Scheme or claiming a Self Employment Income Support Scheme grant to qualify.
How do parents sign up?
Open an online account, which you can pay into to cover the cost of childcare with a registered provider. This will be through the government website www.childcarechoices.gov.uk
Any problems with applying for tax free childcare or an account please phone the Childcare Service Helpline on 0300 123 4097
How do childcare providers sign up?
Childcare providers should have received a letter from the Government containing a unique ID to start the online registration process. Once in the secure site:
- confirms your unique taxpayer reference (UTR) number;
- the HMRC reference number on HMRC communications or on the Personal Tax Account; and
- provides bank details for the account you wish to receive Tax-Free Childcare payments into.