The lowdown on tax free childcare

Tax free childcare is a government scheme that allows parents of children under 12 (or 17 if your child had a disability) to open an online account to pay for childcare.

This means that you can get up to £2,000 per child per year to cover childcare costs of up to £10,000 per year.

Find out if the new scheme benefits you:

1. First off, if you have a child under-four you can sign up right away, but if your children are older but under 12 you can still pre-register NOW and you’ll get email alerts to let you know when you can apply.

2. To be eligible, either both parents, or both partners in the household, must be working and earning at least £120 a week and less than £100,000 a year. 

3. Good news if you work for yourself, or you’ve not previously qualified for childcare vouchers because your employer didn’t offer them - this new scheme now allows you to take advantage of the 20% tax perk.

4. Childcare can mean any breakfast/after school club, nursery, playgroup, childminder or nanny, provided that they are registered with either Ofsted, the Early Years Register or the Childcare Register AND they must be registered with the new Tax-Free Childcare scheme – so make sure you check with your chosen provider if they are registered or if they are in the process of signing up to the scheme.

5. To open an account to pay for childcare, go to the Childcare choices website. Once set up, you can pay money in as you would any other 'savings' account and then the government will top it up with the extra 20% cash that same day – so for every £8 you pay in the government automatically adds £2 into your tax free childcare account.

6. When you’re set up and log into your account you’ll be able to see all the registered providers of there and be able to select to make payments direct to your provider 

7. You can use the tax free childcare offer alongside the 30-hours offer but not at the same time as using childcare vouchers, claiming universal credit or tax credits.  Use the Childcare choices website to work out what is best for you as you may find that you benefit more from tax credits

I’m not sure if I’ll be better off with the Tax Free Childcare option? 

If you’ve got more than one child and high childcare costs, it could better as the new Tax-Free Childcare option gives up to £2,000 saving on £10,000 per child.

Whereas childcare vouchers have limits which are less sympathetic to families with more than one child that has high childcare costs.  

But, you may be better off with childcare vouchers if:

• You pay basic-rate tax and your total childcare costs are £9,336 or less a year.  If you pay basic rate tax and your childcare costs less than this a year then you’ll save more using  childcare vouchers than if you swopped to the Tax-Free Childcare option

• If you pay higher rate tax and your total childcare costs are £6,252 or less then you too will be better off using a childcare voucher scheme rather than Tax-Free Childcare.

• In the case of couples where one parent doesn't work, you are won’t be eligible for the new Tax-Free Childcare option, but the employed parent would still be eligible to use a childcare vouchers (provided their employer offers a scheme).

You might also like to read:
• 30 hours free childcare: what parents need to know 
• Grandparents and childcare 
• Choosing childcare 
• Childcare benefits