For every £8 paid to a childcare provider, the government will add another £2, which is equivalent to 20% basic rate tax relief. The government’s contribution is limited to £2,000 per child each year (increased to £4,000 for a disabled child), which means that up to £10,000 (£20,000 for a disabled child) of childcare costs can qualify. Payments are made via an online childcare account, and must be used for approved childcare, such as:
The childcare provider must also be signed up to the scheme.
Tax-free childcare is aimed at working parents of children aged under 12, earning less than £100,000 per parent, with both earning at least the national minimum/living wage for 16 hours a week on average over the next three months (this is £131.36 a week for those aged 25 and over).
Self-employed parents can use an average of how much they expect to make over the current tax year, and the minimum earnings test is ignored altogether if the business commenced within the previous 12 months.
Parents: Although both parents normally need to be working, there are certain exceptions such as one parent being on parental , maternity, paternity or adoption leave (the leave must be for another child).
Children: A child stops being eligible on 1 September after their 11th birthday, or up to age 16 for disabled children. Adopted children are eligible, but foster children are not.
Check: Tax-free childcare is not available at the same time as working tax credit, child tax credit, universal credit or childcare vouchers, so parents need to run the government’s childcare calculator to make sure this is the right option for them.