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Tax-free childcare and other ways to save

Discover all of the ways you can save money on childcare, from tax-free childcare to working tax credits, childcare vouchers and free childcare

In this article
Cutting the cost of childcare Tax-free childcare Working tax credit childcare element Free education and childcare for two-year-olds
15 and 30 hours free childcare for three and four-year-olds Universal Credit Childcare vouchers

Cutting the cost of childcare

Whether you’re working, not working, on a low income or higher income, there are several options to help you pay for childcare.

However, these options can't all be claimed at the same time, so you’ll have to choose which one best suits your circumstances.

Below, we explain the different schemes, including:

 

Tax-free childcare

This scheme was launched in April 2017, and is the main option for parents who are in work.

It will likely become the most popular form of government childcare aid once the childcare voucher scheme closes to new claimants on 4 October 2018.

Am I eligible?

You (and your partner, if you have one) must be in work, or getting parental leave, sick leave or annual leave. If you’re employed, you must both earn at least national minimum wage or living wage for 16 hours a week.

If you’re self-employed and started your business less than 12 months ago, the earnings limit doesn’t apply.

How much will I get?

You can get up to £500 every three months for each child. The government will pay 25% of what you pay a childcare provider via an online account – the childcare must be approved.

Pros 

  • You can claim tax-free childcare at the same time as 30 hours free childcare if you’re eligible for both.
  • It only takes 20 minutes to apply online.
  • As part of your application, you’ll find out if you’re eligible for both tax-free childcare and 30 hours free childcare.
  • It can be used by self-employed workers.

Cons 

  • It doesn’t apply to foster children.
  • You can’t claim if you or your partner earn more than £100,000.
  • It’s only for children aged 11 or under.
  • If you’re not working, you can only apply if you’re due to re-start work in the next 31 days.
  • If you have a partner, both of you must be working to be eligible.

Working tax credit childcare element

The childcare element of working tax credit is designed to help parents on low incomes who are in work pay for childcare, in order to help them stay in employment.

Am I eligible?

You and your partner, if you have one, must work at least 16 hours a week. If one of you is not working it must be because they’re either incapacitated, in hospital, in prison or entitled to carer’s allowance.

How much will I get?

You can get paid up to 70% of what you pay for childcare, up to a maximum of £175 per week for one child, or £300 a week for two or more children.

Pros

  • If you’re already claiming tax credits, you can just call HMRC to see if you can add an extra childcare element payment to your claim - you don’t have to fill out a whole new application form.

Cons

  • It’s complicated to work out yourself how much you'll receive.
  • You have to call HMRC whenever your childcare costs change by an average of £10 or more a week, or if they stop.
  • You payments may be limited by the child tax credit two-child limit.

Find out more: how to calculate tax credits

Free education and childcare for two-year-olds

This initiative will offer childcare for the term after your child’s second birthday, and finishing the term after their third birthday. It’s offers up to 15 hours a week of free childcare, for 38 weeks a year. It can only be used with an approved childcare provider.

Am I eligible?

Your child must be two years old, you must live in England and you must receive one of the following benefits:

  • Income support
  • Income-based jobseeker’s allowance
  • Income-related employment and support allowance
  • Universal Credit: if you and your partner (if you have one) have a combined working income of less than £15,400 a year after tax
  • Tax credits: and you have an income of less than £16,190 before tax
  • The guaranteed element of state pension credit
  • The working tax credit four-week run on
  • Support through part 6 of the Immigration and Asylum Act.

You can also be eligible if your child is:

  • Looked after by a local council
  • Has a current statement of special needs, or an education, health and care plan
  • Gets disability living allowance
  • Has left care under a special guardianship order, child arrangements order or adoption order.

How much will I get?

You won’t get paid, but you’ll benefit from free services.

Pros

  • It does not affect your benefits, but if you use the childcare element of working tax credit or universal credit, you can only claim for care above the 15 hours.

Cons 

  • Free hours may only be available within set times and sessions.
  • You have to apply through the local council where the childcare is based, so options depend on local availability.

15 and 30 hours free childcare for three and four-year-olds

All children in England that fall in this age range are eligible for 15 free hours of childcare a week for 38 weeks a year. Care must be from an approved childcare provider.

Am I eligible?

Everyone is eligible for 15 hours of free childcare. You may be able to get 30 hours free childcare a week if you or your partner are in work and earn at least the national minimum wage or living wage.

How much will I get?

You won’t get paid, but you’ll benefit from free services.

Pros

  • You can get 30 hours free childcare at the same time as claiming universal credit, tax credits, childcare vouchers and tax-free childcare.
  • It takes 20 minutes to apply, and you’ll also find out if you’re eligible to claim tax-free childcare with the same application.

Cons 

  • It’s offered through the local council where the childcare is based, so options depend on local availability.

Universal Credit

The government’s new benefits model is being rolled out across the UK. If you’ve already been moved on to Universal Credit, it will replace your tax credits and other income-related benefits.

Am I eligible?

You must already be eligible to claim the main element of universal credit. To qualify for the childcare element, you must both be in work if you’re part of a couple, unless one of you has limited capability for work, regular and substantial caring responsibilities for a severely disabled person or are absent in prison, hospital or residential care.

How much will I get?

You’ll get 85% of childcare costs covered, up to a maximum of £646.35 per month for one child, or £1,108.04 for two or more children.

Pros

  • You get a higher proportion of childcare paid for than working tax credits.
  • There is no set number of hours that you and your partner have to work.

Cons

  • You could lose out if you have more than two children.
  • You must tell the Universal Credit helpline if you stop working – and you can only claim childcare costs for a month after your job ends.
  • You must have a job offer before you can claim again.

Childcare vouchers

Childcare vouchers are given out to employees by employers who decide to run the scheme. You swap your wages for the vouchers, which must be spent on approved childcare providers.

Am I eligible?

You’re eligible if you’re employed and your employer offers a childcare voucher scheme. The scheme will close to new applicants on 4 October 2018.

How much will I get?

You can take up to £55 a week of your wages as childcare vouchers. This means basic-rate taxpayers could gain £930 a year per parent, higher-rate taxpayers might get £624 a year and top-rate taxpayers can get £590.

Pros

  • You can save on income tax and National Insurance payments, as the vouchers are taken out of your wages before tax.
  • If you have already been given vouchers, there is no deadline for when you have to use them by.
  • Only one parent needs to work to be eligible.
  • It’s for children who are aged 15 or under (as opposed to tax-free childcare, which is only for children under the age of 12).

Cons

  • If you haven’t already applied, it may be too late.
  • Whether you can continue to use the service depends on whether your employer continues to offer it.
  • It’s not available to anyone who is self-employed.
  • You can’t continue to claim if you take a career break for longer than a year.