ICAEW.com works better with JavaScript enabled.

TAX NEWS

Tax-free childcare take up remains low despite considerable savings

Article

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

ICAEW Know-How from the Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.

More support on tax

ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.

Sign up for TAXwireJoin the Tax Faculty

More from the Tax Faculty

Latest news
Making tax digital image
TAXwire

Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly enewsletter

Practical guidance
Cover
TAXline

Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.

Technical support
Tax Faculty image
Webinars

Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.