Yes, Ofsted will expect you to do the same EYFS based planning and documentation for your GC as the other mindees.....unless you are not being paid and have them in your setting but as your GC not mindees.
eg when my 4th DC was a baby I did not need to show planning and progress etc for her
Yes it is dodgy. To claim childcare element of tax credits you would have to actually charge them something as they only give parents a percentage of childcare fees. So yes you would be taking payment and doing observations etc ...
I think lots of people do this, quite acceptable. You will obviously have loss of income if you don't charge as your gc place would be taken by somebody else. It's up to you what you do with your salary.
I know someone who cared for their GC and didn't do observations etc. She had a letter from their parents stating they did not want her do follow EYFS with their children. She did get into trouble for it, as Ofsted didn't accept it, but they didn't de-register her or anything. Depends how much you value your Ofsted Grading and they might grade you needs/requires improvement, which means you can't provide funded places and get another inspection sooner.
It's totally bonkers, but that's the way the system works.
As long as the payment is going through your childminding accounts, then I do not feel it is dodgy. If you took the money and did not put through your accounts, then I feel it is questionable as it is income for you. If you choose to offer the childcare place at a loss or at break even, then that is up to you. They will need an invoice just like any other client, as tax credits will check up on what is being paid, so paperwork wise it will need to match. They would not get 100% of childcare cost paid, so how would you make invoice match up?
I suspect it would be better for them not to claim tax credits, as they are being cut anyway and many issues seem to occur. You are not wanting the money, so provide the childcare for free.
Would your grandchildren have trust funds which they could not access until age 18? If you were to pay in to an account like that, which their parents can not access, then it should be fine. I would try to seek some professional advice about setting up savings accounts for grandchildren. Some sort of ISA product may be suitable. What you can not do is give the money back to the parents. Though you could buy them things like any mother/mother in law would do for their son/daughter.
If tax credits is involved then it is Government money so needs to be accounted for, you and your son/daughter don't want to be accused of fraud.
It's not at all dodgy. They pay her for childminding.What she does with her money at that point is entirely her business, she can spend it, save it for her grandchildren, or set it on fire. It's not fraud.
But they can only get up to 70% of what they pay you, so they will have to pay you the other 30% themselves. You will need to charge them full rate and make sure the income is going through your business.