Tax Credits: Understanding childcare

One of the most important parts of the current tax credits system is the help it provides with childcare costs. This is done through the childcare element of Working Tax Credit which can provide help with up to 70% of eligible childcare costs up to a maximum of £175 for one child and £300 for two or more children. This means that the maximum support that a claimant can receive is £122.50 for one child and £210 for two children.

As well as being one of the most helpful parts of the system to claimants, it is unfortunately one of the most complicated. HMRC focus a great deal of their compliance activity on the childcare element as they believe a large number of errors are made in this area.

This section of the site explains more about childcare including who can claim it and how to calculate average weekly childcare costs.

Coronavirus outbreak – update August 2020

Those who are in qualifying remunerative work (or treated as working their normal hours under the new coronavirus-related tax credit rules) and who continue using childcare and incurring and paying costs can continue claiming the childcare element. If the claimant has lost their job (been made redundant) or stopped trading as a self-employed person and no longer meets the qualifying remunerative work test for the childcare element, then they will no longer be able to claim help with childcare costs.

A number of tax credit claimants have been/are working (or treated as working their normal hours under the new coronavirus-related tax credit rules) and unable to send their children to their usual childcare provision but they are expected to keep paying fees or to pay retainer fees. The position in relation to the WTC childcare element for those people and for anyone claiming tax credit help with their childcare costs in these circumstances has not been made clear in any official guidance and we recommend contacting HMRC directly for advice, making a note of the date, time and advisers name and the advice given. Having said that, in their joint press release on 5 August 2020, HMRC suggest that they have continued to accept such costs for tax credit purposes - but that concession is coming to an end. They have recently announced that tax credit claimants getting the childcare element of WTC for childcare fees they have continued to incur but where the child/children have been unable to access the childcare because of the impacts of the coronavirus outbreak, must notify HMRC if they expect this situation to continue beyond 7 September. After 7 September 2020, HMRC will no longer accept those fees for the childcare element of WTC and, if there are no other approved childcare fees to include, the childcare element will no longer be paid. Claimants are advised to contact HMRC as soon as possible if they expect that they will still be in this position and their children unable to attend the childcare provision after 7 September so that their tax credit awards can be updated. If claimants subsequently re-start childcare, they should notify HMRC about the change to have the childcare element included, in the usual way.

Last reviewed/updated 17 August 2020