Courtesy of Martin Lewis -
1.5 million families are eligible for this but only one in six have signed up so you could be missing out!
In April 2017, the confusing and somewhat inaccurately named 'Tax-Free Childcare' scheme launched. It was beset with problems, poor communication and technical glitches, and huge numbers of those who can take advantage have been put off. Yet now I believe it's time to look afresh. For those paying for childcare, it can be worth £2,000 annually per child towards Ofsted (or equivalent) registered nurseries, childminders, nannies, after-school clubs, play schemes and home care. Here are the need-to-knows:
Do you even need to pay for childcare? If you've a 3-4 year old, you're entitled to up to 30hrs/week of free childcare.
Family income under £40,000ish? Check if you're entitled to universal credit childcare help. If you're working (or in a couple where both works) and pay for childcare, then universal credit could cover up to 85% of your childcare costs (max £7,750/yr for 1 child, £13,300/yr for 2+).
The entitlement system is complex, so rules of thumb are difficult, but definitely spend 10 mins on our Universal Credit & Benefits Calculator if you've family income under £40,000 (I'm not saying you'll get universal credit, just that it's worth checking). If you've expensive childcare costs, you may be due it even at higher income levels. If you get universal credit you CAN'T get Tax-Free Childcare (but universal credit's likely worth more to you anyway).
Tax-Free Childcare means for every £80 you pay, the state adds £20. This is a boost of up to £2,000/yr per child (£4,000/yr if disabled). To do it you need to pay for childcare via a special Tax-Free Childcare account. The gain is equiv to the income tax paid by a basic-rate taxpayer - hence the name - though higher-rate taxpayers don't get a bigger boost. Here are the eligibility criteria, but read our full Tax-Free Childcare guide for how it works and how to do it...
- You must be paying for Ofsted (or equiv) childcare for an under-12 (under-17 if he or she is disabled).
- You must work and earn £131+/wk - for couples, both must earn this. No one parent can earn £100,000+/yr.
- The self-employed can also get this, as well as those who are employed.
If you already get Childcare Vouchers, you may be better off sticking with them. Tax-Free Childcare was designed to replace the old Childcare Vouchers scheme that closed to new sign-ups last Oct (some are campaigning to bring it back), though if you were already getting them, you can keep them going. And they may be worth keeping, especially for couples where only one parent works, as then you can't get Tax-Free Childcare but can get vouchers.
Even if you're eligible for both, for those with lower childcare costs and fewer kids, vouchers can be better. See my Tax-Free Childcare vs Childcare Vouchers infographic to work out which is best. Also, while you can use Childcare Vouchers if you get universal credit for childcare, you can end up getting less through universal credit, so it's likely not worth it.