There are several government-backed schemes to support parents in paying for childcare including the tax-free childcare scheme, free childcare and child benefit.
There is a government website which shows which options you might be eligible for and links with how to apply. https://www.childcarechoices.gov.uk/
Tax-free childcare
The tax-free childcare (TFC) scheme was created in 2018 to replace childcare vouchers. It works like a prepayment account which is topped up by the government, and the money can be used to cover the cost of childcare with registered providers across England, Scotland, Wales and Northern Ireland.
What do I get?
For every 80p you pay into the account, the government will pay in 20p. The government contribution is capped at £500 per three-month period meaning that, with your payments and the government top up, you have up to £2,500 to spend on childcare per quarter.
If you have variable childcare costs, for example only during the holidays, it may be worth paying in during the course of the year as the government top up is capped each quarter.
Where a child is disabled the government top up is doubled to £1,000 per child quarter (£4,000 per year).
Child and Childcare Eligibility
The TFC scheme is meant to encourage parents back to work, so payments can only be made out of the TFC account where one of the main reasons for the childcare is so that you can work.
To be eligible for TFC, a child must be 11 or under and usually live with the parent who is making the claim.
The funds can be used to pay for approved childcare which includes, childminders, nurseries, nannies, afterschool clubs and play schemes. You can check if a childcare option is eligible at https://www.gov.uk/help-with-childcare-costs
Parent Eligibility
To be eligible for TFC, you (and your partner if you have one) must earn at least £2,167 over a three-month period. This doesn’t have to be a regular amount each week or month as long as the total earnings over the three months is over £2,167. The earnings can be from employment or self-employment, but earnings do not include dividends, interest, rental income or pension income.
However, if you or your partner have an adjusted net income of over £100,000 a year, neither of you will qualify for TFC. Adjusted net income is your total taxable income before the personal allowance but after deducting any trading losses, gift aid donations or private pension contributions. Please contact your usual BHP contact if you are unsure of your adjusted net income.
If you are married or in a civil partnership and live together, or you are living together as though you are married, you must apply jointly, and you both must qualify. If you are separated, you need to decide who should apply.
As the scheme was brought in to replace childcare vouchers, you cannot claim TFC if you are already part of a legacy scheme. If you wanted to swap to TFC, you can. However, once you leave one of the legacy schemes, you cannot rejoin them. There is a calculator on the government website which may help you decide which scheme is best for you, https://www.gov.uk/childcare-calculator
How to claim
Claims are generally made online at https://www.gov.uk/apply-for-tax-free-childcare
Free childcare
All 3 to 4-year-olds in England can get 570 free hours of childcare per year. It is usually taken as 15 hours a week for 38 weeks of the year, but you can choose to take fewer hours over more weeks. It has to be with an approved childcare provider.
This free childcare is extended from 15 hours per week to 30 hours, generally where the same eligibility criteria as for TFC are met. To claim the additional free childcare, it is the same process as the TFC claim.
In the 2023 Spring Budget, it was announced that the free childcare hours would be extended, meaning that, by September 2025, it is intended that working parents of all children over the age of nine months and under five will be entitled to 30 free hours of childcare.
Unlike the TFC scheme, the free childcare scheme applies only in England. Scotland, Wales and Northern Ireland having different schemes.
Child Benefit
If you are a parent of a child aged under 16 (or under 20 if in approved education or training), you can claim Child Benefit. The current rates are £24 per week for the eldest child and £15.90 per week for any additional children.
Where you, your partner, or someone who lives with you as your partner has an adjusted net income over £50,000, the child benefit is clawed back through the high-income child benefit charge (HICBC). The charge is tapered, and once the adjusted net income is over £60,000, the HICBC claws back all of the child benefit. The HICBC is paid through the self-assessment tax return system.
It is important to note that you can have a liability for the HICBC even where you personally have not received any Child Benefit, irrespective of whether the child is your own.
If you think you, or your partner, may be subject to the HICBC and this is not currently being declared on a tax return, please get in touch with your usual BHP contact.
You or your partner can opt out of receiving the child benefit if your income is consistently above £60,000 to avoid the HICBC. However, if your income is above £60,000 when your child is born, it could still be beneficial to register for child benefit but state on the form that you do not wish to receive payments. Registering means that any non-working parent can get a national insurance credit towards state pension until the child is 12, as well as the child receiving a national insurance number automatically around their 16th birthday.
Claims can be made at https://www.gov.uk/child-benefit/how-to-claim
If you have any questions on the content in this article, please contact your usual BHP Healthcare contact.
