The Tax Free Childcare Scheme

The cost of Childcare in the UK is amongst the highest in the world, with only Switzerland and Slovakia ranked more expensive. On average the cost of childcare in the UK is £12,376 per year which makes it unaffordable for many families. With inflation soaring to a 30 year high, parents in the UK will continue to feel the squeeze in the coming months.

In 2017, the government launched the Tax-Free Childcare scheme to help subsidise the cost of Childcare by up to £2,000 every year for each child and £4,000 for a disabled child. The scheme is estimated to target towards 1.3 million families; however, recent data shows that only 1 in 4 families have taken part of this scheme, click here to read more.

Tax-Free Childcare allows parents to pay childcare providers from a government account. For every £8 parents pay, the government contributes £2, up
to a maximum of £2,000 a year until a child is 11 – and up to £4,000 for disabled children until they turn 17. The scheme is applicable to use towards approved childcare services such as, childminders, nurseries, nannies and after school clubs. It is important to note that can also receive Tax-Free Childcare at the same time as 30 hours free childcare if you’re eligible for both.

The eligibility for this scheme is dependent on the following factors:

  • You (and your partner if you have one), will need to be in work or maternity/paternity leave, with income of at least £142 per week.
  • If you’re self-employed and do not expect to make enough profit in the next 3 months, you can use an average of how much you expect to make over the current tax year.
  • Your child must be 11 or under and usually live with you, if your child is disabled, you may get up to £4,000 a year until they’re 17.
  • Adopted children are eligible, but foster children are not.
  • You cannot get Tax-Free Childcare at the same time as claiming Working Tax Credit, Child Tax Credit, Universal Credit, or childcare vouchers.
  • The scheme is not available if either partner expects to individually earn more than £100,000 a year.

To read about employing your children in your business, read more here.