The Government’s Tax-Free Childcare scheme offers up to £2,000 a year per child towards childcare costs, including nursery, childminder and wraparound care.
But while 1.3 million families are eligible, around 800,000 aren’t currently using this benefit.

For every £8 you pay in, the government will automatically add £2, up to the value of £2,000 per child per year (or £4,000 for disabled children).  It essentially gives you basic-rate tax back on your bill.

Who is it for?

For working families, including the self-employed, in the UK who are:

• Earning under £100k and at least £152 per week (equal to 16 hours at the National Minimum or Living Wage) each
• Who aren’t receiving Tax Credits, Universal Credit or childcare vouchers
• With children aged 0-11 (or 0-16 if disabled)
  
  

If you have a partner, you usually both need to be in work to qualify. But there are some circumstances where you’d be eligible even if you are not working, including:

You’re on sick leave, you’re on annual leave, you’re on shared parental, maternity, paternity or adoption leave, and already have a Tax-Free Childcare account for another child.

Calculations

You open an online Tax-Free Childcare account using your Government Gateway ID and for every 80p you pay in, the Government will top up your account. A quick way of making sure you put in the right amount is to look at your childcare bill and multiply it by 0.8. This gives you 80% of the total bill – and the amount you should put in your tax-free childcare account – and you’ll get the remaining 20% as a top up (subject to the £2,000 a year cap).

It includes breakfast and after school clubs

You can get help paying for childcare if it’s provided by a 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.

This is known as ‘approved childcare’.

It’s worth checking that a provider is registered with the scheme,  before opening your Tax-Free Childcare account. The rules are different depending on where you live.

Is it right for you?

Tax-Free Childcare isn’t right for everyone, and for most who are already getting help with childcare with Universal or Tax credits costs from the state, signing up to it will mean you LOSE those benefits.

You (and your partner, if you have one) will also have to cancel your Universal Credit and childcare vouchers.

So before you apply, check if it’s the right option for you.

How it works & how to sign up

If you’re eligible, you’ll need to create an online childcare account via the Government Tax-Free Childcare site. It should take about 20 minutes to set up, and you’ll need your national insurance  and if you’re self-employed, you’ll also need your unique taxpayer reference.

Only one parent can open the account but  both can use it – so you’ll need to decide in whose name you open it.

How do I pay into it?

You’ll be able to pay money in by setting up a standing order, or by making a payment from your bank account (using your debit card). Unfortunately, it’s not possible to set up a direct debit. Other people, such as grandparents or family friends, can also pay in.

A bank transfer is the quickest way for your money to show as ‘available funds’.

When does the top up appear?

The Government should top it up with the extra cash the same day.

You MUST reconfirm you’re still eligible for Tax-Free Childcare every three months or risk missing out
One of the key features of the Tax-Free Childcare scheme is that you need to reconfirm that you’re eligible four times a year. The process is quick and simple and you’ll be given timely reminders when you’re due.

If you don’t reconfirm by your deadline, and your childcare bill is due, you’ll have to pay the amount in full without the 20% top-up from the state.

Remember 1.3 million families are eligible so it is definitely worth checking.