By setting up an online childcare account, you can get a government top-up to help with the costs of childcare. However, thousands are missing out on this payment.
Tax-free childcare is worth up to £500 every three months (£2,000 a year) for each of your children, which doubles if a child has disabilities. Despite the impact of lockdowns, nearly 250,000 families saved money using the scheme in December 2020, an increase of more than 40,000 compared to a year earlier.
How tax-free childcare works
Your child must be aged under 12, with eligibility ceasing on 1 September after their 11th birthday (under 17 if a child has disabilities).
For every £8 you pay into your childcare account, the government will pay £2. These amounts can then be used to pay for approved childcare, such as:
- childminders, nurseries and nannies;
- after school clubs and play schemes; and
- home care agencies.
The childcare provider must also be signed up to the scheme, but there is no other reason why childcare cannot be provided by a relative.
You can only get help paying for care outside of normal school hours, so, for example, private music lessons during school hours don’t count. Money can be saved during term time, earning the government top-up, and then used for summer camps or play schemes during school holidays.
Restrictions
There are certain restrictions on eligibility:
- Other benefits – You cannot have tax-free childcare and also receive universal credit, tax credits or childcare vouchers, so it is worth checking if tax-free childcare is the right option.
- Minimum income – Both parents must normally earn at least the national minimum/living wage. However, you may still be entitled if temporarily earning less as a result of Covid-19.
- Maximum income – Both parents must earn less than £100,000. If previously ineligible, you might now qualify if income has fallen, for example due to being furloughed.
You can check if you’re eligible for tax-free childcare, find out how to apply and how to pay your childcare provider here. If you are unsure about anything our Accounting & Business Advisory can help on 01142 664 432 or info@smhca.co.uk
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