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Tax-free childcare take up remains low despite considerable savings


Published: 02 Feb 2022 Update History

HMRC estimates that less than 22% of families eligible for the scheme had joined in March 2021. ICAEW’s Tax Faculty explains the choices for working families.

Support for meeting childcare costs varies across the UK, but there are three options that could apply for working families across the UK:

  1. Tax-free childcare (launched in April 2017)
  2. Tax credits or universal credit
  3. Childcare vouchers (if they joined the scheme before 4 October 2018)

HMRC estimated that in March 2021, 1.3m families were eligible to join the tax-free childcare scheme, but only 282,000 had actually joined. Research conducted on behalf of HMRC showed that 19% of those interviewed were using childcare vouchers (you cannot use both). However, a further 20% who were interviewed and were eligible had not joined the scheme because they thought they earned too much.

Tax-free childcare is available for UK working families (including the self-employed) who are not receiving tax credits, universal credit or childcare vouchers. It can also be used at the same time as the 15 or 30 hours’ free childcare in England.

To be eligible for tax-free childcare, each working adult in the household must be earning at least £142 per week (equal to 16 hours at the current national minimum or living wage). However, the tax-free childcare scheme is not available if either partner expects to individually earn more than £100,000 a year.

For every £8 paid into an online account, the government adds an extra £2, up to £2,000 per child per year (£4,000 for disabled children). It is available for children under the age of 12 (under the age of 17 if the child is disabled).

For example, for childcare costs of £500 per child per month, the family would pay £400 into their childcare account and the government would pay in £100 per child. This would be an annual saving of £1,200 per child.

Find out more:

Childcare choices

Tax Free Childcare: understanding the barriers to sign-up in 2021

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