Important temporary changes to Tax-Free Childcare scheme

Overview of Tax-Free Childcare

Tax-Free Childcare allows eligible parents to save 20% of their childcare costs, up to a maximum of £2,000 per year, per child (up to £4,000 for a child with a disability). To be eligible for Tax-Free Childcare:

  • Both parents, or one parent in a single-parent household, must be working, earning between £139.52 per week and £100,000 per year.
  • Self-employed parents are eligible to join.

Tax-Free Childcare can be used to pay for registered childcare for children under the age of 12 (under age 17 for children with a disability).

Changes as a result of COVID-19

Temporary changes have been made to the income and earnings eligibility criteria for Tax-Free Childcare due to COVID-19. The changes may affect you if you, or someone you live with, are:

  • on furlough
  • not able to work or are working less
  • self-employed and have seen a reduction in earnings.

All other eligibility criteria for the scheme remain the same, for example, you cannot apply for Tax-Free Childcare at the same time as you are in receipt of Universal Credit or Tax Credits.

If you are on furlough, and are paid 80% of your wages, you can apply or reconfirm your eligibility for Tax-Free Childcare provided your wage is:

  • equivalent to at least the National Minimum Wage for 16 hours per week or
  • would normally be equivalent to at least the National Minimum Wage for 16 hours per week.

If you’re not able to work or you’re working less, you can still apply or reconfirm your eligibility for Tax-Free Childcare if you are:

  • getting sick pay or statutory sick pay
  • taking unpaid leave to care for others, such as your children, and expect to meet the minimum income requirement after COVID-19
  • living with someone who has COVID-19, and expect to meet the minimum income requirement after COVID-19
  • working less and therefore receiving a wage that is below the normal minimum income requirement, but would normally expect to earn above it.

If you are have been made redundant, you are not eligible to apply or reconfirm your eligibility for Tax-Free Childcare. If you start employment again, and will meet the income requirements, you can apply up to 31 days before you start your new job.

If you are self-employed and not able to work, or your earnings have been reduced, you can apply or reconfirm your eligibility for Tax-Free Childcare provided one of the following applies:

  • your earnings remain above the minimum earnings requirement
  • your earnings would normally be above the minimum earnings requirements.

Note that payments made through the Self-Employment Income Support Scheme count as earnings.

Additionally, if you are a critical worker who is likely to exceed the maximum income threshold for Tax-Free Childcare due to working increased hours as a direct result of COVID-19, you may still be eligible for Tax-Free Childcare for the current tax year.

More information is available here.

Our Family Benefits Advice Service can offer advice and guidance on Tax-Free Childcare and the other forms of financial support available with childcare, to help you work out what is best for your family. Contact our advice helpline on 028 9267 8200 or email hello@employersforchildcare.org.

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