Everything you need to know about Tax Free Childcare

Share this story

Written by: alcumus
25th July

How can employers support parents?

One way that employers can support staff without incurring any cost is to make them aware of the government scheme of tax-free childcare. This is an accessible and helpful scheme where the government provides up to £2,000 a year for each child in the household, to help working parents with the cost of childcare. This increases to up to £1,000 every three months if the child is disabled (up to £4,000 a year.) Parents can use this to pay towards approved childcare which can be nurseries, childminders, nannies and also includes after school clubs and other play schemes.

Parents/guardians are required to set up an online childcare account and for every £8 they pay into the account the government will pay in £2. Parents/guardians can also get tax free childcare at the same time as 30 hours free childcare, if they are eligible for both.

Parents/guardians must reconfirm their eligibility every three months from the date the application was made in order to be able to continue to use the scheme. For disabled children the scheme can be used to pay for extra hours of childcare and can also assist the childcare provider in purchasing any specialist equipment such as mobility aids.

Who is eligible for tax free childcare?      

The eligibility requirements for tax free childcare are: -

  • The childcare provider must be signed up to the scheme before parents/guardians can pay them
  • Parents/guardians must be working
  • This covers parents/guardians who are in employment but currently on sick leave or annual leave
  • It also includes those on shared parental leave, maternity, paternity or adoption leave. However, for those on adoption leave, they cannot apply for the child they are on leave for unless returning to work within 31 days of the date they first applied
  • Parents/guardians and others in the household such as partners will have to declare their income
  • For those not currently working they should still check their eligibility if their partner is working, they receive contribution-based Employment Support Allowance (ESA) or Severe Disablement Allowance. Parents/guardians can apply if they are starting or re-starting work within the next 31 days
  • The income requirements are for the parent/guardian to be earning at least the National Minimum Wage for 16 hours a week, on average. If parents/guardians have a partner, they would also need to match these earnings
  • Anyone with an expected ‘adjusted’ net income over £100,000 (including any expected bonuses) in the current tax year would not be eligible. Adjustment income is the total taxable income a person receives before any personal allowances and minus things like Gift Aid. Income excludes dividends, interest, pension payments and income from investing in property
  • Parents/guardians (and partners if relevant) must have a National Insurance number, British or Irish Citizenship, settled or pre-settled status or you have applied and are awaiting a decision, permission to access public funds -their residence card will tell them if they cannot do this

How can employers assist with childcare?

Employers can also assist employees with families by ensuring their Employee Handbook contains policies regarding flexible working and hybrid working. This can improve retention for employees with families and also make the employer a more attractive prospect when they are recruiting to fill vacancies. An effective work/life balance can also reduce sickness absence and increase productivity for employees and therefore be positive for employers.

If you would like more information regarding this, we have a team of HR experts ready to support you.

Make an enquiry