Tax free childcare - how does it work?

[peepsypops]

So I have a standing order going into my TFC account monthly - the amount I transfer is the full cost of my childcare without taking TFC into account.

Eg. I pay in £800. The govt then tops it up with their amount. I usually let that top up build up and then I try to withdraw it to my account. But it doesn't let me withdraw the full amount because it's government money?

What way do you do this and am I doing it wrong? Thanks

I meant to say the £800 then goes straight out to the crèche.

Should I be transferring less allowing for the top up to make up the remainder? I'm a bit confused.

Reduce the amount you pay in next month, so you end up with more money in your own bank account. Government won't let you withdraw from the tax free childcare so no point letting it build up.

You can't withdraw the top up - that can only be used for payments to the provider.

If your monthly childcare cost is £800, you only need to pay in 80% of that - £640 and the top up will cover the other £160.

Wait for your childcare bill, minus 20% and pay that into TFC. Government tops it's up to the correct amount and pay it. Easy.

Your TFC account effectively manages 2 balances - one is the money you have paid in (which you can always withdraw) and one is the top up (which can only be used to make childcare payments).

Oh gosh ok! Thanks
Does that mean I've missed out on top ups or does it all work out anyway?
Isn't there a maximum amount they will repay meaning some month I may need to pay more? I usually have this going out automatically...

If you've paid all your childcare costs out of the TFC account then you haven't really lost out.

If you think your childcare costs will increase then it is worth paying in enough to get the max top up every 3 months. To do this, you'll need to pay in £2kin each quarterly period and leave the balance in there to build.

If you're paying £800 a month out already then you should be getting £480 of the max £500 a month.

If you want the max, pay in £667 a month, pay your childcare costs and leave the balance there to build.

Thank you 🙏🏻

We paid the full amount in for two years then when I have been on mat leave had enough (with the top ups) to pay for nursery throughout as well. The additional has really helped

you can withdraw money but the topup will be taken off. So you paid in 800, receivers a topup of 200 (balance 1000)

if you want to withdraw 200 you’ve effectively paid in 600, to which gets added 25% (150), remaining balance 750.

@LottieMary this is a great idea! Do you know if there's a time limit on using the money in the account or anything like that? I'm not looking to have another baby right now but that sounds like a great idea if it will just keep adding up and stay in the account for future!

I'm pretty sure the account is linked to the child so you can't use it for nursery costs for a younger sibling. Not certain on this though.

If you do have another child, make sure you set up the account and start paying in as soon as you're eligible to. I think it's the month before you return to work. I took 2 months of holiday at the end of May leave so paid in for 3 months before nursery started and had £500 additional top up.

How come you're trying to withdraw it? I don't understand.

Each child has their own unique reference number. Don't forget that tfc can also be used once school age for wraparound care, holiday clubs

I didn't understand it. I thought the best way was to pay in full that way you get the govt full contribution back and then you take it out again. I clearly had no idea 😅

You need to think of it more as getting a discount. You pay in 80% of the bill, let that get topped up and then pay it. That's where your saving is - not paying the full amount yourself in the first place.

I pay in the max every month although I don't need to use it all as PILs help with childcare at the moment. I don't withdraw it, I leave it in there as I know I'll need it for wraparound and holiday camps once dc is older.

Does anyone know if there is a limit to the time I can leave the money in there, and if the top up would be removed after a certain time?

You can use the money until your child’s 11. We did it cos we could afford the full payment and I figured best to just get used to it, get the top up etc. not enough to worry about a savjngs rate (we paid about 450 a month then). Now we’re coming to the end of my mat leave so we’ve been able to drop our payments slightly as well as having enough to carry them both through when they’ll be at nursery together before my youngest 15 hours funding kicks in and my oldest goes to primary. Basically it’s kept our payments pretty flat throughout which has really helped. If we didn’t have the second I’d be using it for wrap around care when oldest goes to school, or reviewing whether I wanted to put so much in.