Tax-Free Childcare: A Complete Guide

Tax-Free Childcare (TFC) is a government scheme designed to help working families with the cost of registered childcare. Launched in April 2017 and progressively rolled out to all eligible families by October 2017, it replaced the old Employer-Supported Childcare (childcare voucher) scheme for new claimants, though those already receiving vouchers were able to remain on the old scheme. TFC is operated through National Savings & Investments (NS&I) via the Childcare Choices website (childcarechoices.gov.uk) and the Government Gateway.

Understanding TFC (how it works, who is eligible and how it interacts with other forms of support) is important because it represents a significant potential saving on childcare costs that many eligible families are not claiming. Government data consistently shows that the scheme is significantly undersubscribed relative to the number of eligible families, with awareness and understanding of the scheme among the most commonly cited barriers to take-up.

How Tax-Free Childcare Works

Parents open a TFC account through the Childcare Choices website. For every £8 paid into the account, the government adds £2, giving a total of £10 that can be used to pay registered childcare providers. This top-up of 25% of the amount deposited (or, equivalently, 20% of the total cost) applies to the first £8,000 per year per child deposited – meaning the maximum government contribution is £2,000 per child per year. For children with a disability, the maximum contribution is doubled to £4,000 per year (capped at £16,000 deposited).

The TFC account can be used to pay for a wide range of registered childcare, including nurseries, childminders, after-school clubs, holiday clubs and nannies who are registered with a regulator. Providers must be registered for TFC to receive payments through the scheme – parents should check with their provider that they are TFC-registered before attempting to pay this way. Happy Hearts Learning Centre is registered for Tax-Free Childcare payments.

Who Is Eligible?

To be eligible for TFC, the following conditions must be met:

• Both parents must be working (or the sole parent in a single-parent household). Working means employed, self-employed or on statutory maternity, paternity or adoption leave
• Each working parent must earn at least £2,570 gross per quarter (£10,280 per year). This is approximately equivalent to 16 hours per week at the National Minimum Wage and is adjusted annually
• Neither parent can have adjusted net income above £100,000 per year. If either parent exceeds this threshold, the family becomes ineligible
• The child must be aged 11 or under (or aged 16 or under if they have a disability)
• The child must be in England (separate schemes operate in Scotland, Wales and Northern Ireland)

Self-employed parents who have just started their business, or who have a period of low earnings, can use the start-up period rules: they can count themselves as earning the minimum during the first 12 months of self-employment without meeting the actual earnings requirement. This makes the scheme accessible to parents in the early stages of building a business.

Reconfirmation: The Most Common Reason for Loss of Entitlement

TFC accounts must be reconfirmed every three months. Reconfirmation involves logging into the Government Gateway and confirming that the family still meets the eligibility criteria. If a family fails to reconfirm by the deadline, their account will be closed and any accumulated government top-up will be returned. They can reopen the account, but they will lose any money paid in by the government that had not been used before closure.

The reconfirmation requirement catches many families out. It is not prominently signposted and the reminder emails are easy to miss. Families should diary the reconfirmation dates (which are linked to the date the account was opened, not a fixed calendar date) and treat them as a financial priority. Missing a reconfirmation has no grace period.

Interaction With Other Childcare Support

TFC can be used alongside the 15-hour or 30-hour funded childcare entitlements. This is one of TFC’s most important features: funded hours cover the entitlement hours, and TFC can be used to pay for additional hours beyond the entitlement (known as the “top-up hours”) and for holiday club provision not covered by funded hours. TFC can also be used to pay for before-school provision, after-school clubs and extra-curricular activities with a registered provider.

TFC cannot be used at the same time as childcare vouchers from the same employer. Families who are currently receiving childcare vouchers must decide whether to remain on the voucher scheme or switch to TFC – and should make this calculation carefully, as for some higher earners on the legacy voucher scheme the vouchers may still provide a larger benefit. An online comparison tool is available on the Childcare Choices website to help families make this calculation.

How to Open a TFC Account

To open a TFC account, visit childcarechoices.gov.uk and use the eligibility checker to confirm you qualify. You will then be directed to the Government Gateway to create or log into your account, after which you can apply for a childcare account. The process takes approximately 20 minutes and you will need your National Insurance number and, if employed, your employer’s PAYE reference. Self-employed parents will need their Unique Taxpayer Reference (UTR) number.

Once the account is open, you can start paying money in immediately and using it to pay your childcare provider. There is no minimum payment and no requirement to put in a regular amount. You can pay in up to £8,000 per year (per child) and the government will add up to £2,000. The money in the account can only be used for registered childcare – it cannot be withdrawn as cash.