- 1. What is childcare support?
- 2. Who is entitled to free childcare in the UK?
- 3. What childcare benefits are available in the UK?
- 4. Which childcare costs are covered through Universal Credit?
- 5. What is Tax-Free Childcare?
Managing our personal finances might sometimes feel like a juggling act 🤹
Budgeting and planning can help us manage our money better, but this challenge is amplified for working families with children to support because the cost of childcare can be a significant financial strain to bear.
Recent research we conducted, indicated nearly 50% of parents with children under 5 aren’t taking full advantage of the tax benefits or financial support available from the government. What’s more, over 70% find the government support available is “confusing or inaccessible”.
Set against an economic backdrop of rising prices, many of us may be looking for ways to make every penny count. So, it’s essential to know what government childcare help you may be entitled to.
What is childcare support?
When we’re talking about free childcare benefits provided by the government, what we mean is help towards the cost of ‘approved childcare’.
The rules about how childcare providers become approved vary according to which country within the UK you live in, but you may be entitled to government help with childcare if it’s provided by a:
1. Registered childminder, nanny, playschool or day nursery
2. Registered childminder from a childcare service or agency
3. Home care worker working for a registered home care agency
Who is entitled to free childcare in the UK?
The government provides some support as a financial incentive for parents who wish to work, and it doesn’t necessarily stop once the kids go to school.
There are government schemes for children of different ages, depending on your circumstances. You could get help towards care that covers the following:
• Free care for children aged between 2 and 4
• Help with care costs if your child is under 16 (or under 17 and disabled)
Free childcare available for 2-year-olds
If you live in England and have a two-year-old child, you might be entitled to 15 hours of free childcare per week during term time if you are on a low income and getting certain benefits, or if your child has additional needs.
In Scotland, you may get 30 hours of free childcare each week during term time if you are on a low income and getting certain benefits, if your child has additional needs, or if you’re an experienced carer.
In Wales, you could get 12.5 hours of free care each week during term time, if you live in a qualifying area.
Free childcare available for 3 and 4-year-olds
In England, all 3 and 4-year-old children are entitled to 15 hours a week of free care during term time. There are no earnings requirements and you don’t need to be claiming benefits to be eligible. Many 3 and 4-year-old children from working families are entitled to an extra 15 hours of free childcare (taking their total entitlement up to 30 hours a week during term time).
In Scotland, all children in this age bracket are entitled to 30 hours of free care each week during term time. There are no work or earnings requirements and you do not have to be on benefits to get free care.
In Wales, some working parents with children this age are entitled to a complimentary total of 30 hours for government schemes that include a mix of early education and childcare during term time. The exact amount of free care you can in Wales depends on the offering from your local authority.
What childcare benefits are available in the UK?
You can check what help is available to you by using the government’s free online calculator.
Alternatively, read on for an overview of the benefits available through Universal Credit, Tax Credits or Tax-Free Childcare.
Are childcare costs covered through Universal Credit (UC)?
If your household income is under £40,000 (or even up to £50,000 if you have a larger family and you rent your home) and the free scheme either doesn't apply or won't cover your full childcare bill, you may be eligible to claim additional support through Universal Credit (UC).
If you’re working whilst claiming UC you could be eligible for help with up to 85% of your childcare costs, to a maximum of £646 a month for one child or £1,108 a month for two or more children.
The only requirement (apart from being employed) is that your carer is an approved, registered provider. If you live with your partner, they'll also have to be in work or be classed as having a 'limited capability for work' by the Department for Work & Pensions.
Top Tip 💡 What childcare benefits are available via Tax Credits?
If you’re claiming Tax Credits, rather than Universal Credit, you might be able to get help with up to 70% of your childcare costs. You must normally work 16 hours per week and use approved care to qualify.
You may also wish to consider switching to Universal Credit, though there's a lot to consider first, so make sure you do your homework before committing.
How does Tax-Free Childcare Work?
If you don’t qualify for Universal Credit (or Tax Credits) and you’re working, you may be able to apply for Tax-Free Childcare.
This is a government childcare scheme that pays 20% of your costs, up to a maximum of £500 every 3 months (£1,000 for a disabled child).
The mechanics of how it works mean that for every £0.80 you contribute (up to the maximum), the UK government will top up with an additional £0.20 (effectively reimbursing the basic rate of income tax). This means you can use the scheme to pay for up to £10,000 of care per child each year (i.e you pay £8k and the government coughs up an extra £2k per annum).
Who is eligible for Tax-Free Childcare?
Your eligibility for government Tax-Free Childcare depends on your employment status, your income, your child’s age/circumstances and your immigration status.
You can usually get tax-free care if you (and your partner, if you have one) are in work, or on sick leave, annual leave, shared parental, maternity, paternity or adoption leave.
If you’re not currently working but your partner is, and you get Incapacity Benefit, Disablement Allowance, Carer’s Allowance or contribution-based Employment and Support Allowance, you may still be eligible.
To qualify for Tax-Free Childcare you and your partner (if you have one) must each expect to earn the National Minimum Wage or Living Wage for at least 16 hours per week, on average, for the next 3 months.
If either you or your partner has an expected net income of over £100,000, you will not be eligible for Tax-Free Childcare. Also, certain income sources cannot be included when calculating your eligibility. These include dividend payments, interest, income from investing in property and pension payments.
Your child’s circumstances
To qualify for Tax-Free Childcare your child must be 11 or under (they stop being eligible on 1st September after their 11th birthday) and live with you.
Adopted children are eligible, but foster children are not.
If your child is disabled and usually lives with you, you may get up to £4,000 per year until the beginning of the term after your child turns 16 years old.
Your immigration status
To be eligible for Tax-Free Childcare, you must have a National Insurance number (if you have a partner, they must have a NI number too) and at least one of the following:
• British or Irish citizenship
• Settled/pre-settled, or you’ve applied and are awaiting a decision
• Permission to access public funds (refer to your UK residence card)
You cannot get Tax-Free Childcare at the same time as claiming Working Tax Credit, Child Tax Credit or Universal Credit.
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