Naomi Hamlin
2 minutes length
Posted: 21st March 2018

Sign up for tax-free childcare

Working parents and guardians are being reminded that all eligible families now have the opportunity to apply for tax-free childcare. This may be particularly helpful with Easter fast approaching, as the money could be used to pay for regulated holiday clubs during the Easter school holidays. 

The roll out of tax-free childcare started back in April 2017, but a phased implementation timetable meant that only those with younger children could initially apply. However, the last phase has recently been implemented, which means that anyone with children under 12, or under 17 if disabled, should check to see if they can benefit from this government scheme.

Under the scheme, the parent/guardian opens an online account via the new Childcare Choices website (www.childcarechoices.gov.uk) and decides how much they want to pay in. Circumstances are re-confirmed online every three months by visiting the website and logging in. Anyone can pay into the account, including grandparents, other family members or employers, giving flexibility to pay in more in some months, and less at other times.

Eligible parents will receive government top-ups of £2 for every £8 that they pay into their tax-free childcare account, up to a maximum of £2,000 per child (or £4,000 for disabled children), up to a maximum of £10,000.

Importantly, the top-up is added instantly, which means that electronic payments can be sent directly to a regulated childcare provider without delay. The maximum government top-up is £500 per quarter for each child.

According to government reports, to date, more than 55,000 registered childcare providers including school, football, art and tennis clubs have already signed up to tax-free childcare – significantly increasing the possibilities for finding (and funding) holiday time childcare facilities.

It’s worth knowing that if circumstance change, money can be withdrawn from tax-free childcare accounts at any time, but in doing so, the government contribution will be lost.

Broadly, to qualify for the top-up payments, account holders will have to be in work, earning at least £120 a week, but not more than £100,000 each per year.

Unlike the current scheme, tax-free childcare does not rely on employers offering it. Any working family can use a tax-free childcare account, provided they meet the eligibility requirements. Switching to tax-free childcare is not obligatory – existing employer-supported childcare schemes will continue to run, although they will only be open to new entrants until October 2018. Parents already registered by this date may continue using it for as long as their employer offers it.

A particular advantage of the tax-free the scheme is that self-employed people will be able to use it (employer-supported childcare is of course only available to employees). The government is introducing a ‘start-up’ period during which self-employed parents won’t have to earn the minimum income level.

It is currently estimated that some two million working families are potentially eligible for tax-free childcare, so it’s well worth checking to see if it applies.