tax-free childcare explained

If you’re looking for help with childcare costs you might want to look into the government’s Tax-Free Childcare scheme.

This can result in savings of 20% on your childcare costs, up to a certain limit.

What is tax free childcare?

Tax-Free Childcare was brought in to replace the previous childcare voucher scheme, which was a form of childcare support delivered by employers.

If you are already on the childcare voucher scheme you can continue to receive it for as long as your employer runs it but the deadline for new applicants was set for 4^th October 2018.

With Tax-Free Childcare you pay money into an account and for every 80p you put in, the government will add another 20p.

So if, for example, your childcare costs were £500 every month, you could pay £400 into the account and the Government would top up the other £100.

This saving is the equivalent of basic rate income tax, hence the name of the scheme.

There is a maximum you can get under the scheme. At the time it was introduced this was for contributions towards a maximum of £10,000 in childcare costs per child, meaning maximum savings of £2,000 per child.

This doubles for parents of disabled children, who can claim towards a maximum of £20,000 in childcare costs per child, for a maximum saving of £4,000.

All of the money in the account must be used to pay for childcare with an approved childcare provider who is signed up to the scheme.

Am I eligible for tax free childcare ?

In order to qualify for Tax-Free Childcare you must meet the following criteria:

• Both you and your partner, if you have one, must be working or on parental leave, sick leave or annual leave
• Self-employed people can also claim if they meet the earnings requirement
• You must be earning the equivalent of the National Minimum Wage or (if you are under 25) or National Living wage (25 or over) for at least 16 hours per week
• The earnings limit does not apply if you’re self-employed and started your business less than 12 months ago
• Neither you nor your partner must be earning more than £100,000 in taxable income

You cannot receive Tax-Free Childcare at the same time as you are claiming Universal Credit, Working Tax Credit, Child Tax Credit or childcare vouchers.

Your child also has to meet the following criteria:

• They must usually live with you
• They must be 11 or under – you can only get Tax-Free Childcare up to 1st September after their 11^th birthday
• You can get Tax-Free Childcare for adopted children but not for foster children

If your child is disabled you can claim Tax-Free Childcare until they are 17 and you can also make a maximum saving of £4,000.

To qualify, they must receive Disability Living Allowance, Personal Independence Payment or Armed Forces Independence Payment, or be registered as blind or severely sight-impaired.

How can I apply for tax free childcare

You have to apply for Tax-Free Childcare online via the Government’s website.

You will need to provide information for yourself and your partner including you National Insurance number and Unique Taxpayer Reference (UTR) if you are self-employed.

The Government website says it takes around 20 minutes to apply and that you can find out if you are eligible for both Tax-Free Childcare and 30 hours free childcare (which is a different scheme, mainly for 3-4 year olds) at the same time.