All About Tax Free Childcare

As of April 2017, everyone in the UK will be entitled to a portion of their childcare tax-free. This is set to replace the current work based voucher scheme which will end in April 2018. 

As Abacus Ark is a registered provider of tax-free childcare, we thought it would be useful to produce a comprehensive guide on the subject, answering your main questions on the subject.


What is Tax-Free Childcare?

Tax-Free Childcare is where eligible parents receive 20% of their annual childcare costs paid for by the Government! This means that for every 80p you pay, the Government pays 20p. There is however, a maximum amount of £10,000 per year childcare costs per child, meaning you will receive a maximum of £2,000 contribution per year.


How does Tax-Free Childcare Work?

The scheme operates through an online Childcare account, where parents and the Government pay into. You will pay your childcare fees directly into this account and Government will ‘top-up’ the account with their contribution.

The money will then be paid directly to your childcare provider e.g. Abacus Ark.


How do I Qualify for Tax-Free Childcare?

To be eligible for Tax-Free Childcare you must:

  • Have one or more children aged under 12 when the scheme starts in 2017.
  • Work at least 16 hours a week, being paid the National Living Wage or higher - this means both of you if you're in a couple.
  • Earn under £100,000 a year. This applies to both of you if you're in a couple (so if one earns more than £100,000, then - as a couple - you can't access Tax-Free Childcare).
  • Not be claiming tax credits (this includes the childcare element of Working Tax Credit) or universal credit.

It is also open to single parents/couples who work eight or more hours a week, including self-employed, and who pay for Ofsted-registered childcare for a child under the age of 12, or under 17 if the child is disabled. 


In 2017, am I better off with Childcare Vouchers or Tax-Free Childcare?

During 2017 both Childcare Vouchers and Tax-Free Childcare will be an option for some families. Each family’s circumstances are very different, however there are three main factors that will determine which scheme will suit you. These are:

  • How much you earn
  • How much tax you pay
  • How much childcare you pay

It will also depend on whether you already receive childcare vouchers and if your employer currently offers childcare vouchers. 

To work out which option will suit you we found this useful tool - Tax-Free Childcare calculator.


Will using Tax-Free Childcare affect my fees?

The Tax-Free Childcare will not impact your fees. They will however be another option to help burden the cost of childcare.


How to claim Tax-Free Childcare?

Although the process isn't currently in place, we're assured that it should be very simple, by following these steps:

  1. Create an online account on the government website. This will be very similar to a normal savings bank account.
  2. You are then able to pay into the savings account at your own pace. You will also be able to remove money if you need to.
  3. When you need to pay for childcare, as long as your local childcare provider has an account, you will be able to pay directly to them from this account.
  4. When you pay your childcare, the amount received by the childcare provider will be 20% higher (as long as you still have benefit left).


Need more information?

Here is a useful link which may answer any questions we have been able to cover here - 10 things parents should know

We Accept Tax-Free Childcare

In August 2017, make sure you set up your account online!