Tax Free Childcare

Tax Free Childcare

What is tax free childcare?…..Am I eligible?…..How do I set it up?…..How do I use it?

What is Tax-Free Childcare?

Tax-Free Childcare is a scheme set up by the government in which they help towards childcare costs by paying the tax (20%) for you. It is operated via an online account which works in a similar way to a bank account in that you pay in and out of it.

Am I eligible?

The scheme is open to all working parents across the UK with children under 12, or under 17 if disabled. 

Parents must be earning at least the national minimum wage or the national living wage for at least 16 hours a week, but not more than £100,000 each per year. (See more details below.)

Employed and Self-employed parents are eligible.

You are still eligible if you claim the 30 hours’ free childcare at the same time.

Tax-Free childcare is only best if you can’t get other state help, so check if you’re eligible for free childcare hours or universal credit first. Tax-Free childcare may not be used at the same time as childcare vouchers.

Opening a Tax-Free Childcare account will mean you stop getting paid your benefits (all of it, not just the childcare part).

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 share parental, maternity, paternity or adoption leave, and already have a Tax-Free Childcare account for another child.
  • You or your partner is in work and the other isn’t able to work and receives certain benefits such as incapacity benefit, carer’s allowance or severe disability allowance.

The £100,000 earnings limit

The £100,000 is based on your ‘adjusted net income’ (your total taxable income minus certain tax reliefs, like pension contributions or charity donations). So, if you pay any tax-deductible expenses, these might take you below the threshold.

If both partners earn £100,000 you can qualify, but if one earns £30,000 and the other £100,001, you won’t. Your partner doesn’t have to be the other parent – it’s all based on who you live with.

The earnings limit doesn’t apply to self-employed people if the business was started within the previous 12 months.

How do I set it up?

You open an online Tax-Free Childcare account using your Government Gateway ID, it should take about 20 minutes to set up, and you’ll need your national insurance number to hand (if you’re self-employed, you’ll also need your unique taxpayer reference). Only one parent can open the account.

Sign in to your childcareaccount – GOV.UK (

What can I use my Tax-Free childcare for?

Tax-Free childcare can be used towards childcare costs, including nursery, childminder, before and after school clubs and even some holiday camps – As long as the provider is registered with the Tax-Free childcare scheme.

How does it work?

Eligible parents will open an online account into which they will pay money and the government will automatically make top-up payments of £2 for every £8 paid in by the parent up to a maximum of £2,000 (£4,000 for disabled child) per child each year, although there will be no restriction on the number of children for whom support is available. The amounts held in the childcare accounts must be used to pay qualifying childcare costs. 


If your childcare bill was £500/month, you’d multiply 500 x 0.8 to get £400. You’d put £400 into your Tax-Free Childcare account  and the remaining £100 (20%) will then be topped up by the Government. You would then set up a payment to your childcare provider of £500.

Parents can only get a maximum Government top-up of £500 every three months.

You will 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. 

How do I pay in?

You’ll be able to pay money in by setting up a standing order, or by making a payment from your bank account. Money may be withdrawn at any time but in doing so, the government contributions will be lost.

If you’d like to discuss Tax-Free Childcare, please get in touch.