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Tax-Free Childcare Scheme for Working Parents

If you’re a working parent or legal guardian, it’s important that you know about the tax-free childcare scheme delivered by the government. This gives you 20% off your childcare costs, with the government adding 20p to every 80p you pay into your account.

The scheme can be used for childminders, nurseries, nannies, afterschool clubs and play schemes, making it much easier to fulfil your weekly hours without having to worry about the welfare of your kids whilst you’re at work.

How much can I get?

Under the tax-free childcare scheme, you can claim up to £500 every three months, up to a maximum of £2,000 a year. This applies to each of your children, so if you have two kids you can times that by two, and so on.

If your child is disabled, the amount you can claim increases to £1,000 every three months and is capped at £4,000 a year.

How does it work?

First of all, your child has to be aged 11 or under and live with you, with their eligibility expiring on the 1st of September following their 11th birthday. Whilst adopted children are eligible too, this scheme unfortunately doesn’t apply to foster children.

You then need to check that you’re eligible and apply. Once this is done, the government will add £2 on top of every £8 you pay into your account.

Do I need a certain level of income?

Yes, you’ll need to expect to earn an average of at least the National Minimum Wage or Living Wage for 16 hours a week, as will your partner if you have one.

What if I’m self-employed?

We understand that 2020 has been a difficult year for everyone, so if you don’t expect to make enough profit in the next three months, you can use an average of how much you expect to make over the current tax year.

Exemptions

If you or your partner expect to earn a net income of over £100,000 in this tax year, you won’t be eligible for the scheme. Although, if this is the case and it’s due to you being a critical worker that earned more through overtime due to COVID-19, you can still apply.

You’re also exempt from the scheme if you or your partner receive a childcare bursary or grant or expect to do so within the next three months. The same applies if you’re claiming Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers.

However, if you’re receiving childcare vouchers from your employer, you can forfeit them in favour of tax-free childcare. Simply tell your employer within 90 days of applying for the scheme, and send a confirmation letter or subsequent copies of your payslips to HMRC as proof that you’re not claiming both.

What if I’m not working?

The scheme is designed to support parents who require childcare whilst they’re at work. That being said, if you’re not working but your partner is, you may still be able to claim tax-free childcare if you receive Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or contribution-based Employment and Support Allowance.

Another common scenario is when you’re waiting to return to work or start a new job within the next 31 days. In this case, you can apply right now rather than waiting until you’re in the workplace.

Can it be used anywhere?

Your childcare provider needs to be signed up to the scheme too, so make sure to check with them first. If they’re not, it might be worth asking if they’d consider joining.