New Tax-Free Childcare scheme

14 June 2017


Personal Tax Planning

At the end of April 2017, the new Tax Free Childcare scheme was launched by the government. The government has started inviting parents to apply for Tax Free Childcare beginning with parents of the youngest children and parents of disabled children.

If you are an employer, you may be asked questions about the new scheme by your employees.

If you are self-employed you may be interested in using the scheme yourself, as this is the first childcare scheme providing a tax break for the self-employed.


What is Tax Free Childcare?

Eligible parents will open an online childcare account. When a parent pays into the account, the government will pay in an extra 25%. So if £80 is paid into the account, the government will automatically add £20. The maximum government payments are £2,000 per child per year. This means annual childcare costs of £10,000 per child can be met by £8,000 of payments by the parents and £2,000 by the government.

For a disabled child, the maximum top-up payments are £4,000.

How much parents pay into their Tax Free Childcare account, and when, is up to them.


Who can qualify for Tax Free Childcare?

Parents need to be ‘working parents’ paying for ‘registered childcare’ for children under 12 (or under 17 for disabled children). If parents are not living together, the qualifying parent depends upon with whom the child usually lives.

The main criteria for a parent are:

  • earns on average at least £120 a week
  • earns less than £100,000 a year
  • not receiving other support for childcare such as Child Tax Credit or Universal Credit.

There are other more detailed criteria to consider as well.


What is “registered childcare”?

Only childcare providers registered or approved by a UK regulator can sign up to receive Tax Free Childcare payments. HMRC has written to childcare providers, asking them to sign up online for Tax-Free Childcare. Parents will be able to check online who is registered for the Tax Free Childcare scheme.


What if you have an Employer Supported Childcare scheme?

As an employer you may have set up and still run an Employer Supported Childcare scheme e.g. via childcare vouchers under a salary sacrifice arrangement.

An employee cannot benefit from both an Employer Supported Childcare scheme and the Tax Free Childcare scheme. However employees are free to choose between the schemes if already in an Employer Supported Childcare scheme or join such a scheme before April 2018 - dependent on you continuing to offer a scheme.

The government has provided a ‘childcare calculator’ which provides an estimate of the financial support parents may be able to receive after they have answered a number of questions on their childcare costs and income. The calculator is available at


What about the 30 hours free childcare scheme?

The current scheme provides 570 hours of free early education or childcare over 38 weeks of the year - typically taken as 15 hours a week over 38 weeks – and is available for all three and four year-olds. The 30 hours scheme potentially extends the entitlement to an additional 570 hours. However not all children will be entitled to receive the extra hours.

The scheme will begin in September 2017 but eligible parents can apply for the Tax-Free Childcare and the 30 hours schemes through one online application.


Where is the best place to review the options available?

The government has recently launched a website – Childcare Choices – which guides parents through the various ways help is, or will be available:


Information sheets for employees

If you would like to provide information to your employees about Tax Free Childcare we can supply you with an information sheet. Please contact us and we will supply you with a digital version.  


Antony Sassen