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Tax free childcare

Tax-Free Childcare is a new Government scheme to help working families with their childcare costs.

Parents will be able to open 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 will be 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 you 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?

For parents:

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 £125.28 per week for a person age 25 or over
  • Each earn no more than £100,000 per year

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

Tax-Free Childcare was launched in early 2017. The scheme is being rolled out gradually to families, with parents of the youngest children able to apply first.

You’ll be able to apply for all your children at the same time, when your youngest child becomes eligible. All eligible parents will be able to join the scheme by the end of 2017.

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.

Currently there is a delay for childcare providers who are registered as a charity. HMRC is amending the registration system shortly so these childcare providers will be able to register.

For updates see the official government information Tax-Free Childcare and Tax-Free Childcare Support.

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