??How Tax-Free Childcare Works??
Haggards Crowther Chartered Accountants
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Today, we’re focusing on the government’s Tax-Free Childcare scheme, which offers financial support to parents. However, according to HMRC, nearly 61% of eligible families aren’t using this benefit...!
In this article, we’ll explain how it works and whether it’s something you could benefit from.
What Is the Tax-Free Childcare Scheme?
The Tax-Free Childcare scheme helps parents with childcare costs, offering up to ￡2,000 per year, or ￡4,000 for children with disabilities. Every three months, the government will pay up to ￡500 into your childcare account, or ￡1,000 for those with disabilities.
To benefit, you’ll need to set up an account on the HMRC website. For every 80p you pay in, the government adds 20p—essentially covering 20% of your childcare costs.
This can be used to cover a wide range of childcare expenses, including nursery fees, after-school clubs, playgroups, nannies, au pairs, and even activities like sports or art classes, as long as the provider is registered with the Tax-Free Childcare scheme.
However, keep in mind that you’ll need to reconfirm your eligibility every three months to continue receiving the top-up.
Who Can Apply?
You may be eligible if you’re working or planning to start work within the next 31 days. This applies whether you are single, in a partnership, or self-employed.
In most cases, both parents need to be working, but there are exceptions, such as if you’re on annual leave, sick leave, or taking shared parental, maternity, paternity, or adoption leave.
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The scheme is available for children up to 11 years old (or 16 for those with disabilities), with eligibility ending in the September after their 11th (or 16th) birthday.
Does Your Income Affect Eligibility?
Yes, your income is a factor. To qualify, you and your partner (if applicable) need to earn at least the equivalent of 16 hours per week at the national minimum wage.
There’s also an upper limit. If either of you earns over ￡100,000 a year, you won’t qualify. However, this limit is based on your taxable income, so pension contributions or charitable donations could help keep you within the limit.
Where to Start
We understand that navigating available benefits can be overwhelming. To make things easier, the government has a childcare calculator that helps you determine what you might be entitled to.
If you need help understanding how to optimise your tax expenses, we're here to support you. Don’t hesitate to contact us.