Huge number of parents missing out on up to £2,000 a year in free childcare

Parents across the country could get up to £2,000’s worth of free childcare just in time for the summer holidays. Around 1.3 million people are believed to be eligible for the government’s tax-free childcare scheme.

Despite this, only around 500,000 are currently taking advantage. The scheme is available for parents with children aged 11 or under (16 and under if the child has a disability).

It helps pay for ‘approved’ childcare. Parents can receive up to £500, or £1,000 if a child is disabled, every three months, equating to £2,000 a year for some children.

How does tax-free childcare work?

The scheme essentially operates to allow parents not to pay tax on earnings they would use to pay for childcare. While generally you would £20 out of £100 in taxes, the scheme instead sees the government topping the claimant up by £20.

The money intended for childcare can then be used to pay for childcare providers and after-school clubs. You will only receive the top-up once you pay-in for the childcare. Therefore, to receive the maximum of £500 or £1,000 for a disabled child, you will need to pay £2,000 for every three months.

Who is eligible for tax-free childcare?

According to the government, a person’s eligibility for Tax-Free Childcare will depend on their employment status, income, immigration status, and the child’s age and circumstances.

Working parents

Parents who are in some form of work, even if just one parent is working and the other is unemployed, can receive Tax-Free Childcare if they meet one of the following:

• In work
• Currently on sick leave or annual leave
• Currently on shared parental, maternity, paternity, or adoption leave and planned to go back to work within 31 days of the date they first applied

Parents not working

Parents can still receive Tax-Free Childcare if their partner is either working or receives one of the following benefits:

• Disability Benefit
• Severe Disability Allowance
• Carer’s Allowance
• Carer Support Payment (Scotland only)
• Contribution-based Employment and Support Allowance

Applications can be made for this group if they are either starting or re-starting work within 31 days of the application.

Income

Following an application, parents must report that they expect to earn the following over the next three months:

• 23 hours over – £2,167
• 21 or 22 – £2,117
• 18 to 20 – £1,557
• Under 18 or an apprentice – £1,098

This is calculated based on the current National Minimum Wage or Living Wage for 16 hours a week on average. Because of this, claimants can use an average of their expected earnings if they do not receive a regular income or are self-employed.

For those self-employed who have only started a business less than 12 months before their application, they can still claim Tax-Free Childcare despite earning less than the above criteria.

Status of child

In order to be eligible for Tax-Free Childcare, a child must be:

• 11 or under and usually live with the applied parent

If a child is disabled, they can be eligible until September 1 after their 16th birthday. However, they are only eligible for Tax-Free Childcare if they get the following benefits:

• Disability Living Allowance
• Personal Independence Payment
• Armed Forces Independence Payment
• Child Disability Payment (Scotland only)
• Adult Disability Payment (Scotland only)

The child will also be eligible if they are certified as either being blind or severely sight-impaired.

Immigration status of parents

In order to be eligible for Tax-Free Childcare, you must have a National Insurance number and have either a British or Irish Citizenship, settled or pre-settled status, or permission to access public funds.

A partner must also have a National Insurance number. Frontier workers are also eligible, but they must show their Frontier Worker permit to the Childcare Service before sending an application.

Other benefits

You are unable to receive Tax-Free Childcare if you are already claiming:

• Working Tax Credit
• Child Tax Credit
• Universal Credit
• Childcare vouchers

You can claim for tax-free childcare online at gov.uk here.