Tax-Free Childcare in the UK

In 2017, the government introduced a tax-free childcare subsidy, Tax-Free Childcare (TFC). Under TFC, the tax relief available is 20% of childcare costs, up to a total of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child (or £4,000 for a disabled child). Parents can apply for TFC for children under 12 (up to 17 for children with disabilities).

The way this is administered is that the parents pay into an online childcare account and for every £8 that you pay into it, the UK Government will add £2. It may also be possible to get 30 hours of free childcare concurrently with Tax-Free Childcare if you happen to meet the eligibility criteria for both of them.

Eligibility Criteria for the Tax-Free Childcare Subsidy

To qualify for TFC, all parents in the household must generally meet a minimum income level based on working 16 hours a week. This threshold is currently £164. Each parent must earn less than £100,000 a year and must not already be in receipt of support through Tax Credits or Universal Credits.

You are also considered to be eligible if your partner is working, and you are not currently in employment, but you are in receipt of a range of benefits, including Incapacity Benefit, Severe Disablement Allowance, Carer's Allowance or contribution-based Employment and Support Allowance. You can also apply for Tax-Free Childcare if you start or re-start work within the next 31 days.

What Can Tax-Free Childcare be used for?

The tax-free childcare scheme can be used to defray the high childcare costs and must be spent via an approved provider. An approved childcare provider is someone who fits one of the categories below:

• registered childminder, nanny, playscheme, nursery or club
• childminder or nanny with a registered childminder agency or childcare agency
• registered school
• home care worker working for a registered home care agency

One of the reasons the Government chooses to ensure that any public money being spent is on approved childcare is that it vastly reduces the risk of fraud and fake companies being set up just to benefit from the public sector money being generated.

Another reason for this is that all childcare providers should be regulated and held to account by the proper authorities for doing so, which differ in the various countries that make up the UK.

In England, this is regulated through Ofsted, which regulates all of the education systems. In Northern Ireland, it is through the local early years teams register. In Scotland, it is the Scottish Care Inspectorate taking on this role, and in Wales, it is regulated through Care Inspectorate Wales.

If you have any questions about how this works, we at Lawrence Grant Accountants would be happy to hear from you at be-ambitious@lawrencegrant.co.uk or +44 (0)20 8861 7575 if you would prefer to call.