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 pandemic & childcare

Childcare support continues as normal for those who meet the relevant conditions and incur childcare costs. We explain the conditions to claim the childcare element in the main section of our website

To qualify for the childcare element, working tax credit claimants have to meet certain hours requirements as well as other conditions. Hours that claimants are treated as working under the special coronavirus rules (outlined on our tax credits and coronavirus page) count when considering whether they qualify for childcare support.

During the early stages of the pandemic, some childcare providers shut down but asked parents to continue paying their fees or to pay retainer fees. Under a strict reading of the legislation, childcare costs cannot be claimed if the child is not attending or taking up their place. However, HMRC confirmed that they would continue to pay the childcare element in cases where childcare costs were incurred but the claimant was unable to send their child to the provider due to coronavirus. This concession was withdrawn from 7 September 2020 and childcare costs paid for childcare that does not take place have not been accepted for tax credits from that date.

Last reviewed/updated 3 November 2020