Tax Free Childcare and Childcare Support

Navigating the world of childcare support can be daunting for parents and guardians especially with the variety of options available.

Understanding and accessing childcare support can significantly reduce the financial burden of raising children.

Our childcare tax guide aims to provide clarity on tax free childcare, child benefit and additional childcare support schemes to help you choose the best financial assistance available for your family and how to access it.

What is Tax Free Childcare?

Tax free childcare is a government scheme designed to help working parents with the cost of childcare.

It allows eligible families to receive up to £2,000 per child per year (or £4,000 for disabled children) to cover childcare expenses.

At present parents working over 16 hours weekly and earning under £100,000 qualify for 30 hours of free childcare per week for their three to four-year-old children.

In this section we will discuss the eligibility criteria, application process and potential benefits of tax free childcare.

Tax Free Childcare eligibility criteria

To qualify for tax free childcare the following conditions must be met:

• You and your partner (if applicable) must both be working and earning at least the national minimum wage or living wage for 16 hours per week.
• Your combined household income must not exceed £100,000 per tax year.
• Your child must be under 12 years old (or under 17 if they have disabilities).
• You must not be receiving childcare vouchers, tax credits or universal credit for childcare costs.

Tax Free Childcare from April 2024

Starting from April 2024 working parents with two year olds can access 15 hours of free childcare. In September 2024 the availability of 15 hours of free childcare will extend to all children aged nine months and older.

By September 2025 working parents with children below the age of five will be eligible for 30 hours of free childcare weekly.

Some childcare providers might request additional fees beyond the complimentary childcare. For more details you can visit childcarechoices.gov.uk.

Tax Free Childcare application process

To apply for tax free childcare, follow these steps:

Visit the Childcare Choices website and complete the online application.

If approved you will receive a unique code that you must provide to your childcare provider.

The government will then contribute 20p for every 80p you pay towards your childcare costs up to the maximum limit.

Benefits of Tax Free Childcare

Tax free childcare offers several advantages for parents such as:

• Flexibility in choosing registered childcare providers, including nurseries, childminders and after school clubs.
• The ability to use the government contributions for more than one provider if necessary.
• Online account management allowing you to easily monitor and manage your childcare expenses.

Understanding Child Benefit

Child benefit is a tax free payment that helps parents and guardians with the cost of raising children. This section will outline the eligibility criteria, payment rates, and application process for child benefit.

Child benefit eligibility criteria:

To be eligible for child benefit your child must be:

• Under 16 years old, or
• Under 20 years old and in full time approved education or training.

Note:

Before claiming you should learn about the high income child benefit tax charge which we discuss below.

Child benefit payment rates:

As of 2023 the child benefit rates are:

• £24 per week for your first child.
• £15.90 per week for each additional child.

These rates may change annually so it’s important to keep up to date with the latest government announcements.

Child benefit application process

To claim child benefit you can follow these steps:

• Visit the GOV.UK Child Benefit page and download the claim form (CH2).
• Fill out the form and send it to the Child Benefit Office along with your child’s birth certificate.

If your claim is approved you will receive child benefit payments usually every four weeks.

High income child benefit tax charge

If you or your partner earns over £50,000 per year, you may be subject to the high income child benefit tax charge.

This charge reduces your child benefit by 1% for every £100 earned over the £50,000 threshold.

If your income reaches £60,000 or more your entire child benefit amount will be effectively eliminated.

High income tax charge and self assessment

A self assessment tax return has to be completed if you incur the high income tax charge.

HMRC expects you to report your child benefit on a tax return even if you don’t submit a tax return for any other reason (for example self employment).

Additional Childcare Support options

Aside from tax free childcare and child benefit, there are other childcare support options available for families. In this section, we will discuss childcare vouchers, tax credits, and Universal Credit.

Universal Credit:

Universal Credit is a single monthly payment that replaces several existing benefits, including tax credits.

It’s designed to simplify the benefits system and provide support based on individual circumstances.

For help with childcare costs under universal credit you may be eligible for up to 85% of your childcare expenses, with a maximum limit of £646 per month for one child or £1,108 per month for two or more children.

To apply for Universal Credit visit the GOV.UK universal credit page and follow the online application process.

Tax Credits:

Tax credits are available to low income families to help with the cost of raising children. The two main types of tax credits are:

• Child tax credit: Provides financial assistance based on the number of children in your household and your income level.
• Working tax credit: Offers support for working parents with low incomes.

Tax credits are gradually being replaced by universal credit. If you are already receiving tax credits you should be notified when you need to switch to universal credit.

Childcare Vouchers:

Childcare vouchers are an employer-provided benefit that allows you to pay for childcare using pre-tax income. This can result in significant tax savings depending on your income and tax bracket.

The childcare voucher scheme closed to new applicants on October 4, 2018. If you were already using vouchers before this date you can continue to do so as long as your employer continues offering the scheme and you remain eligible.

Can I use multiple childcare support options at once?

In most cases you cannot receive tax free childcare, childcare vouchers, tax credits, or universal credit for childcare costs simultaneously.

You will need to choose the option that provides the most financial benefit for your family.

How do I find a registered childcare provider?

To locate a registered childcare provider you can visit the GOV.UK Find Childcare Service page and search by location.

What happens if my circumstances change?

If your family or financial situation changes it’s important to update your information with the relevant childcare support provider.

This may affect your eligibility and the amount of financial assistance you receive.

Choosing the right Childcare Support option

With several childcare support options available it’s crucial to select the one that best suits your family’s needs.

It’s beneficial to keep in mind that eligibility criteria and payment rates may change over time so staying up to date with the latest information is essential.

Consider the following factors when making your decision:

• Your eligibility for each support option.
• The amount of financial assistance provided by each scheme.
• The flexibility and convenience of each support option.
• Your current and future employment situation.

By carefully evaluating each support option you can maximise your childcare support income and ensure that your family receives it’s full childcare support entitlement.