Government scheme aids families with childcare costs

HMRC is urging parents to apply for the Tax-Free Childcare scheme, which provides government contribution on savings used to cover childcare costs.

The new scheme replaces Childcare Vouchers, which is now closed to new applicants. The government says Tax-Free Childcare is better than the old system as it is open to both employed and self-employed people, meaning about a million more families qualify for help.


The scheme mean that for each 80p a family pays into their online government childcare account, the government adds 20p, which equates to basic rate tax, meaning that parents could potentially receive £2,000 per year, per child, towards their childcare costs, which is a massive boost when looking at the cost of childcare.


However, if one parent earns more than £100,000 per year, they are no longer eligible for this tax relief and neither are parents whose children don’t live with them or foster parents. Parents who receive Working Tax Credit, Child Tax Credit or Universal Credit are also not eligible to take part in the Tax-Free Childcare scheme.


Millions of families are failing to take advantage of this valuable area of tax relief at a time when family finances are being squeezed from all sides. However, HMRC also needs to ensure that parents are not left out of pocket by systems failures – parents need to know that their childcare costs are going to be covered without difficulty or delay.


A government spokesperson said: “Tax-Free Childcare is a great offer for working parents and more and more families are benefitting from it. We’re urging all parents to check the Childcare Choices website to see how much they could save, and to apply.”


They added that the number of parents benefitting from Tax-Free Childcare had almost doubled since March last year and they were running a national campaign to raise awareness.

Posted in Blog, Tax, Tax Blog.