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 May 2020

We are awaiting confirmation from HMRC regarding the position for WTC claimants who get help with childcare costs. Those who are in qualifying remunerative work and who continue using childcare (because they are key-workers) and therefore incurring 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 meet 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 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. It is not clear what the position is in relation to the WTC childcare element for those people and for anyone claiming tax credit help with their childcare costs in these circumstances, we recommend contacting HMRC directly for advice, making a note of the date, time and advisers name and the advice given. That advice should be followed until HMRC publish further information.

Last reviewed/updated 7 May 2020