In May, HM Revenue and Customs (HMRC) reminded parents of the savings they can make on childcare costs when a child starts primary school for the first time.
The government’s tax-free childcare scheme allows eligible persons to pay money into a designated National Savings & Investments (NS&I) account in respect of an eligible child. HMRC then tops up the account by paying an additional 25% into it. For example, if a parent pays £800 into the account, HMRC would add £200.
Are you Eligible to Claim?
A family could be eligible for tax-free childcare if they satisfy the following main conditions:
- They have a child or children aged 11 or under. Eligibility ceases on 1 September following the child’s 11th birthday. A disabled child is eligible until 1 September after their 16th birthday.
- The parent and their partner (if they have one) must earn, or expect to earn, at least the national minimum wage or living wage for 16 hours a week, on average. Dividends, interest, property and pension income do not count towards the minimum income threshold.
- The claimant and their partner must each earn no more than £100,000 a year.
- The claimant and their partner must not be entitled to universal credit or childcare vouchers, although receipt of incapacity benefit, severe disablement allowance, carer’s allowance or carer support payment or contribution-based employment and support allowance by the claimant is not necessarily a bar to a claim if their partner is working.
- The claimant and their partner (if they have one) must have a National Insurance number and have British or Irish citizenship, settled or pre-settled status (or be in the process of claiming this) or permission to access public funds.
- The claimant must reconfirm their details every three months.
Is your Child Eligible?
The child must also meet specific eligibility criteria as follows:
- They must be 11 or under and usually live with the claimant.
- They cease to be eligible on 1 September following their 11th birthday.
- Adopted children are eligible, but foster children are not.
- A disabled child who usually lives with the claimant may be eligible for the scheme until 1 September after their 16th birthday. The child will be eligible for an increased HMRC contribution if they receive disability living allowance, personal independence payment, armed forces independence payment, child disability payment (Scotland only) or adult disability payment (Scotland only) or are certified as blind or severely sight-impaired.
The Childcare Fund and Its Use
Once a childcare account is open, money can be deposited in it by the parents or others. The government adds 25% of the deposits, and this can be used as and when required. If the maximum amount of £2,000 is deposited every three months, a top-up payment of £500 will be made every quarter. This can be used immediately or kept in the account and used as required on approved childcare or holiday club costs. Money in the account that is not required for childcare can be withdrawn, but the related top-up payment will be returned to HMRC. For a disabled child, up to £4,000 can be deposited quarterly, meaning that £1,000 would be added by HMRC.
Conclusion
The tax-free childcare scheme is a source of government support towards childcare costs, but its interaction with other childcare provision is complex.
The government’s eligibility checker tool (www.gov. uk/get-tax-free-childcare) can be used to compare whether, for example, a claim would outweigh the loss of other benefits.
Practical Tip
Each eligible child must have a separate NS&I account, but if there is more than one child in a family, the separate accounts can be managed through the same online portal. Those unable to access the portal can apply through the Childcare Service helpline: 0300 123 4097.