Millions of parents missing out on up to £2,000 a year tax-free childcare – how to claim explained
MILLIONS of parents are missing out on up to £2,000 a year through the government’s tax-free childcare scheme. HMRC estimates that as many as 1.3million households could be missing out – despite qualifying for the help. The latest figures from the taxman show that the government spent £33.3m on top-ups for families in March 2021. […]
MILLIONS of parents are missing out on up to £2,000 a year through the government’s tax-free childcare scheme.
HMRC estimates that as many as 1.3million households could be missing out – despite qualifying for the help.
The latest figures from the taxman show that the government spent £33.3m on top-ups for families in March 2021.
In total, 282,000 families used Tax-Free Childcare for 329,000 children in March 2021, compared to just 248,000 families in December 2020.
Even though the numbers are rising, and have bounced back from when most childcare was shut during lockdown, only 10% eligible families are claiming the benefit.
Myron Jobson, Personal Finance Campaigner at interactive investor, said: “The Tax-Free Childcare scheme is a great money saver for eligible parents, effectively offering 20 per cent off childcare up to a maximum of £2,000 per child per year.
“Greater promotion of the initiative is still needed to raise awareness while encouraging even more parents to apply.”
Here’s everything you need to know about the benefit, how to find out if you’re eligible and how to make a claim.
What is tax-free childcare?
Qualifying parents can get up to £500 every three months (the equivalent of £2000 per year) to help with the cost of childcare.
If your child has a disability, this rises to £4,000 each year, or £1,000 every three months.
You have to set up an online childcare account with the government, and then for every £8 you pay in, you’ll get a free £2 added on – up to the limits.
You can get Tax-Free Childcare at the same time as 30 hours free childcare if you’re eligible for both.
You can use the cash to pay for approved childcare, such as childminders, nurseries, nannies, after school clubs and play schemes.
Your childcare provider must be signed up to the scheme before you can pay them and benefit from the scheme.
Who is eligible for tax-free childcare
There’s lots of rules and regulations that outline whether you are eligible for the benefit.
For instance, if either you or your partner earns over £100,000 (including bonuses) then you won’t qualify for the scheme.
You also need to meet several other criteria around whether you work, how much you earn and whether your partner has a job.
Working criteria
If you are working, you can usually get Tax-Free Childcare if you (and your partner, if you have one) are:
- in work
- on sick leave or annual leave
- on shared parental, maternity, paternity or adoption leave
If you’ve lost work because of coronavirus, or your work pattern has changed you might still be able to qualify.
You can still apply if:
- you’re on furlough through the Coronavirus Job Retention Scheme
- you’re claiming a Self Employment Income Support Scheme grant
If you aren’t working, you can still apply if you get Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or contribution-based Employment and Support Allowance.
Income criteria
To qualify, you need to earn over a certain threshold for the next three months, – the equivalent of the National Minimum Wage for 16 hours a week on average.
For example, at the moment you would need to earn at least £1,853.28 – the National Living Wage for people over 23.
If you have a partner, they’ll need to expect to earn at least this much too.
If you’re self-employed and do not expect to make enough profit in the next three months, you can use an average of how much you expect to make over the current tax year.
This earnings limit does not apply if you’re self-employed and started your business less than 12 months ago.
Criteria for your child(ren)
Your child must be 11 or under and usually live with you. They stop being eligible on September 1 after their 11th birthday.
Adopted children are eligible, but foster children are not.
How does tax-free childcare affect other benefits?
You cannot get Tax-Free Childcare at the same time as claiming Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers.
If you successfully apply for Tax-Free Childcare, your Working Tax Credit or Child Tax Credit will stop straight away. You will not be allowed to apply for them again.
Wait until you get a decision on your Tax-Free Childcare application before cancelling your Universal Credit claim.
The scheme that is best for you depends on your specific situation. You can use the childcare calculator to work out which type of support is best for your family.
How to apply for tax-free childcare
There’s one application for Tax-Free Childcare and 30 hours free childcare. As part of your application, you will find out if you can get both.
You need to apply online – via the government website.
You’ll need to set up the account, and use it to pay for your registered childcare.
You’ll need details to hand for both you and your partner including:
- National Insurance numbers
- Unique Taxpayer Reference (UTR), if either of you are self-employed
It takes 20 minutes to apply, and it can take up to seven days to find out if you are eligible.
You need to reconfirm your details every three months to keep getting the help.
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