Financial support available to working parents: Tax-Free Childcare

Tax-Free Childcare has been rolled out gradually since its launch in April 2017 and is now available to all eligible families with children under 12 (under 17 if the child has a disability). Tax-Free Childcare allows eligible working families to claim 20% of their childcare costs, up to a maximum of £2,000 per child per year (£4,000 for a child with a disability), from the Government. The Government has launched a website to help parents understand what support is available. Parents can use this website to apply for Tax-Free Childcare.

 Who is eligible?

To claim Tax-Free Childcare, both parents must be in employment, or one parent in a single-parent household, earning between £131.36 per week (£123.20 per week if the parent is under 25) and £100,000 per year. The self-employed are eligible to join, provided their business is registered with HM Revenue and Customs. Income from both employment and self-employment can be used to meet the minimum income requirement. Self-employment income from across the year can be used to meet the minimum income criteria (however, if this approach is used, the minimum income requirement will need to be met using just self-employment income). The first 12 months of self-employment is the start-up period. During this time, the minimum income of £131.36 per week does not have to be met in order to be eligible for Tax-Free Childcare.

Where one parent does not work, it may still be possible to get Tax-Free Childcare if the parent who is not in work is receiving certain benefits, for example, Employment and Support Allowance or Carer’s Allowance.

Effect on benefits and other support

 Anyone applying for Tax-Free Childcare will not be also able to claim:

  • Child Tax Credits
  • Working Tax Credits
  • Universal Credit
  • Childcare Vouchers

Universal Credit, Child Tax Credits and Working Tax Credit payments will stop once a successful application is made for Tax-Free Childcare. Anyone using Childcare Vouchers will need to tell their employer within three months of applying for Tax-Free Childcare so that they can stop providing the Childcare Vouchers. Parents are unable to re-join the Childcare Voucher scheme if they have left it to use Tax-Free Childcare.

How does Tax-Free Childcare work in practice?

The amount parents save with Tax-Free Childcare depends on their childcare costs. For every £8 paid into a Tax-Free Childcare account, the Government pays in £2, up to a maximum of £2,000 per year, per child. A Tax-Free Childcare account must be opened for each child. Parents (or others) can pay into the account at any time and receive the top up (up to a maximum of £500 top up per quarter or £2,000 per annum). These figures increase to £1,000 per quarter (£4,000 per annum) for a child with a disability.

Further information

 Further information on Tax-Free Childcare, and the other forms of financial support available to parents is available on our website, including our ‘Comprehensive Guide to Tax-Free Childcare’. For a personal ‘better off’ calculation, please call our Family Benefits Advice Service on 028 9267 8200. Our trained advisors can help you to ensure that you are accessing all of the financial support to which you are entitled.