The short answer
- You pay money into an online childcare account; the government adds 25% of what you pay in.
- That is 20% of the total cost of the childcare.
- The top-up is limited to £2,000 a year per child, or £4,000 for a disabled child.
- For children up to 11, or 16 if disabled. Both parents must work and each earn under £100,000.
How the top-up works
- Total childcare cost£6,000
- You pay in: 80%£4,800
- Government adds: 25% of £4,800£1,200
The top-up is the same whatever your tax rate, which is why it is called “tax-free”: it gives everyone the equivalent of basic-rate tax relief on childcare.
The yearly and quarterly limits
The £2,000 limit is applied as £500 every three months for each child, or £1,000 for a disabled child. Each three-month period starts from the date you opened the account.
Unused top-up does not roll over. If you spend £2,500 in one quarter and nothing in the next, you get £500, not £1,000. Families with uneven costs, such as summer holiday clubs, can pay into the account early: money you pay in now gets topped up now and can be spent later.
| Childcare a year | Standard child | Disabled child |
|---|---|---|
| £2,000 | £400 | £400 |
| £6,000 | £1,200 | £1,200 |
| £10,000 | £2,000 | £2,000 |
| £20,000 | £2,000 | £4,000 |
Who can get it
You can usually get Tax-Free Childcare if:
- your child is 11 or under (or 16 or under if disabled), until 1 September after their birthday;
- you and your partner, if you have one, are both working, including self-employed, or on parental, sick or annual leave;
- you each expect to earn at least 16 hours a week at your National Minimum or Living Wage over the next three months: £203.36 a week at age 21 or over;
- neither of you has adjusted net income over £100,000;
- you are not getting Universal Credit, tax credits or childcare vouchers.
If one partner cannot work because they get Carer’s Allowance, Incapacity Benefit, Severe Disablement Allowance or contribution-based ESA, the working partner can still qualify.
What you can pay for
The account can pay any childcare provider that is registered and signed up to the scheme, including:
- nurseries and pre-schools;
- registered childminders and nannies;
- after-school and breakfast clubs;
- holiday clubs and play schemes.
It cannot pay for school fees for normal school hours, or for a relative who looks after your child unless they are a registered childminder looking after other children too.
Using it with free childcare hours
In England, working parents can get 30 funded hours a week for children from 9 months. Tax-Free Childcare can pay for everything the funded hours do not cover: extra hours, meals, consumables and holiday weeks.
- Left to pay after funded hours£6,630
- Tax-Free Childcare top-up: 20%£1,326
The free childcare hours calculator works this through for your own hours and rates.
Tax-Free Childcare or Universal Credit?
You cannot get Tax-Free Childcare and Universal Credit at the same time. Universal Credit can repay up to 85% of childcare costs, up to £1,071.09 a month for one child or £1,836.16 for two or more, so lower earners usually do better on Universal Credit.
- Help on £800 a month
- £1,920 a year
- Rate
- 20% of costs
- Income
- No upper effect until £100,000
- Help on £800 a month
- Up to £8,160 a year
- Rate
- 85% of costs
- Income
- Reduced by the 55% taper
Check before you switch
The Universal Credit figure is the most you could get. It falls as earnings rise, and stops when your earnings wipe out your award. If you apply for Universal Credit, your Tax-Free Childcare account closes, and you may not be able to go back straight away. Use the Universal Credit calculator first.
Childcare vouchers
Employer childcare voucher schemes closed to new joiners in October 2018. If you were already in one, you can stay in it as long as you stay with that employer and do not take a break of a year or more. You cannot use vouchers and Tax-Free Childcare together, so compare them: for a basic-rate taxpayer, vouchers are worth up to about £930 a year per parent, while Tax-Free Childcare can be worth up to £2,000 per child.
Opening and running the account
- Step 1Apply online
Through the government childcare service. One application covers Tax-Free Childcare and the working parent hours in England.
- Step 2Pay in
By bank transfer, standing order or debit card. The top-up is added as soon as your money arrives.
- Step 3Pay your provider
From the account, using the provider's reference. Payments usually arrive within a few days.
- Every 3 monthsReconfirm
Confirm you still meet the work and income rules, or the account is frozen.
You can withdraw money you paid in, but the government loses the top-up on it. Money left when your child stops being eligible is returned to you, minus the government’s share.
Common mistakes
- Forgetting to reconfirm every three months, which freezes the account.
- Paying the provider directly instead of through the account, so no top-up is added.
- Spending heavily in one quarter and missing the top-up in quieter ones.
- Not telling HMRC when income passes £100,000, which can lead to repaying top-ups and a penalty.
- Applying for Universal Credit without checking it really pays more.
Worked examples for families
| Family | Childcare a year | Top-up | You pay |
|---|---|---|---|
| One child at nursery | £12,000 | £2,000 | £10,000 |
| Nursery £9,000, plus £3,000 of after-school club for an older child | £12,000 | £2,400 | £9,600 |
| Disabled child at nursery | £14,000 | £2,800 | £11,200 |
| School-age child: after-school club and holidays | £4,000 | £800 | £3,200 |
The limit is per child, so the same £12,000 spread across two children gets £400 more than £12,000 spent on one. Open an account for each child you pay childcare for, even if their costs are small.
Making the quarterly limit work
The top-up limit works in three-month periods from the date you opened the account: £500 per child, or £1,000 for a disabled child. Any top-up you do not use in a period is lost.
- Top-up at 25% of £2,500£625
- Limit for the quarter£500
If your costs are lumpy, for example a big summer holiday club bill, pay in steadily through the year so each quarter gets its £500. The money stays in the account until you use it, so you can save up in advance with the top-up already added.
Is it worth the effort?
The account takes a few minutes to set up and a few clicks every three months. In return, a family spending £10,000 a year on childcare for one child gets £2,000. Even small amounts add up: £150 a month on after-school clubs earns £360 a year in top-ups.
The main reason not to use it is if Universal Credit would pay more, or if you are in an old childcare voucher scheme that is worth more to you. For most working families, it is one of the most valuable things they can claim.
Self-employed parents
Self-employed parents can use Tax-Free Childcare. The earnings test uses expected profit over the next three months, and if your business started within the last 12 months you do not have to meet the minimum earnings test at all.
Profits can be averaged over the tax year if they vary from month to month. Keep a note of how you worked out your expected earnings, because HMRC can ask you to show it at a later check.
Who can pay in, and getting money out
Anyone can pay into a child’s account, including grandparents and other relatives, and every £8 paid in still gets a £2 top-up, within the limits. Employers can pay in too, though that may be taxable.
You can take your own money back out, but the government keeps its share: for each £8 you withdraw, the £2 top-up on it goes back. When a child is no longer eligible, or the account closes, any money left is returned the same way.
Pay as you go
Most families set up a monthly standing order into the account and pay the nursery from it each month. That keeps each quarter’s top-up in use and avoids large balances sitting in the account.
How it fits with the other schemes
| Scheme | Help | Can combine with Tax-Free Childcare? |
|---|---|---|
| Funded hours | 15 or 30 hours a week, 38 weeks | Yes |
| Universal Credit childcare | Up to 85% of costs | No |
| Childcare vouchers (closed scheme) | Up to about £930 a year per parent | No |
| Employer workplace nursery | Tax-free nursery place | Usually yes, for other costs |
Funded hours and Tax-Free Childcare together usually give working families the most help, unless their income is low enough for Universal Credit to pay more.
Reconfirming without problems
Every three months you log in and confirm your circumstances. You get a reminder by email, and you can reconfirm up to four weeks before the deadline. If you also get the working parent funded hours, the same reconfirmation covers both.
If you miss the deadline, your account is frozen and no top-up is added until you reconfirm, and your funded hours code may stop working. Setting a calendar reminder a week before each date avoids this.