An update on Tax Credit support for childcare during COVID-19

Some parents in receipt of Tax Credits have received correspondence which states that, from 8 September, Tax Credits will no longer pay towards fees of children attending a childcare setting where the provider had remained closed due to COVID-19. However, during a period of temporary closure due to COVID-19 parents may still receive support with their childcare costs for up to four weeks.

Tax Credits and childcare costs

In the first months of the COVID-19 pandemic, many parents temporarily stopped using childcare, for example because their usual childcare setting was closed or they were working from home. Typically, the childcare element of Working Tax Credits is only payable where a child has accessed childcare.

However, parents and carers in receipt of the childcare element of Working Tax Credits, and who continued to pay childcare fees they incurred – a retainer fee ­- despite their children being unable to access childcare because of COVID-19, were temporarily able to continue to access the childcare element due to a Government easement of the rules.

Most childcare settings have, however, been able to re-open and parents are able to access the childcare they need. Therefore, from 8 September, the Government has confirmed that it will no longer pay the childcare element of Working Tax Credits for parents who are paying to retain a place at a setting that has remained closed due to COVID-19. If this scenario applies to you, you should contact the Tax Credits Helpline to let them know.

It is also important to note that, if a childcare provider closes temporarily due to COVID-19, and charges a retainer fee, then this is not treated as ‘approved childcare costs’ unless it is subsequently used as payment for actual childcare provision. If a child was not receiving childcare, HMRC wouldn’t expect a provider to continue to charge. Usually, the childcare element rules in relation to Working Tax Credits require your child to attend the childcare and you should contact the Tax Credits Helpline to clarify.

However, HMRC has confirmed that they will continue to pay childcare costs (at the usual rate of up to 70%) for a maximum of four weeks temporary absence due to COVID-19.  This was also confirmed by the Department for Work and Pensions in an answer to a Parliamentary Question tabled by Claire Hanna MP.

If absence is likely to be for more than four weeks you will need to inform HMRC and support for childcare costs will end four weeks after the last date of attendance. Note, if you do not inform Tax Credits of an absence of more than four weeks you risk incurring a significant overpayment which will have to be paid back.

Alert Tax Credits of any changes to your childcare costs

To help prevent an overpayment claimants should always update HMRC as soon as possible if their childcare stops or if the costs for their childcare decrease or end, or if you receive a refund from your childcare provider for fees paid in the past for childcare they were unable to provide. You must tell HMRC about changes to your circumstances that result in your childcare costs stopping or changing by an average of £10 or more a week.

What are the rules in relation to Universal Credit?

If your childcare provider asks for a retainer payment to keep a place for your child – this will not count as relevant childcare costs for Universal Credit and will not be reimbursed as part of your Universal Credit claim, unless it is treated as an advance payment for childcare costs, which will be incurred for childcare used at some time in the future.

Our Family Benefits Advice Service can offer advice and guidance to any parents with questions around Working Tax Credits, Universal Credit or any other form of support with their childcare costs, such as Childcare Vouchers or Tax-Free Childcare. We know it’s a difficult time for families and we are here to help. Contact our advice helpline on 028 9267 8200 or email