Nearly 800,000 families could be missing out on vital financial support for after-school and holiday clubs through the Government’s confusingly named ‘Tax-Free Childcare’ scheme. This initiative offers up to £2,000 annually per child to help with childcare expenses, covering everything from nurseries and childminders to select holiday camps. Despite 1.3 million families being eligible, many are not taking advantage of this assistance.
Eligible parents can receive up to £2,000 per child each year. Overall, the scheme contributes to £10,000 in childcare costs per child annually, providing an additional £2,000 per child—or up to £4,000 if your child has a disability.
Martin Lewis, founder of MoneySavingExpert, is vocal about the scheme’s misleading title: “Tax-Free Childcare is appallingly named, DON’T let it confuse you. Calling the scheme Tax-Free Childcare was a political spin to ensure government gets credit for the scheme. Unfortunately, the name is appallingly misleading, and probably partly responsible for the scheme having a much lower take up than it should.
“It’s not about tax in any way, and isn’t linked to the tax rate you pay. A better name would be ‘Working Families Childcare Top-up’, because it’s effectively a discounted childcare savings scheme where you save and then pay for childcare with a 25% top-up.”
The scheme allows parents to use funds for a wide range of registered childcare options, including holiday activities like tennis, football, and art clubs. To qualify, providers must be registered under the Tax-Free Childcare scheme and a recognized regulator, such as Ofsted or the Early Years Register.
To qualify, you (and your partner, if you have one) need to be working and each earn national minimum wage and each earn £100,000 a year or less. The scheme’s available to parents of children until the September after their children turn 11 (or until they turn 16 if your child is disabled).
Eligible providers include:
- Breakfast clubs and after-school clubs
- Childminders
- Nurseries
- Playgroups
- Nannies
- Au-pairs
Before setting up a Tax-Free Childcare account, it’s crucial to verify that your chosen provider is registered. To initiate the process, visit the Government’s Tax-Free Childcare website; it should take about 20 minutes to complete. Be prepared with your National Insurance number, and if you’re self-employed, your unique taxpayer reference as well.
While only one parent can open the account, both can use it, so it’s important to decide whose name to register it under.
Families can fund their accounts by setting up a standing order or making a bank transfer using a debit card. Although direct debits are not an option, contributions from family members, such as grandparents, are allowed.
The Government typically adds the top-up funds to your account on the same day. Recent improvements indicate that bank transfers are the fastest way to access these funds.
A key aspect of the Tax-Free Childcare scheme is the requirement to reconfirm eligibility four times a year. This quick process comes with timely reminders, but missing a deadline can lead to extra costs. If you fail to reconfirm, you’ll need to pay for childcare in full without the 20% top-up. Although it’s possible to reconfirm after missing the deadline, it may take time for the system to update, potentially costing you valuable savings.
