Tax-Free Childcare: Guidance

Tax-Free Childcare (TFC) is a new scheme that was introduced gradually throughout 2017 and 2018. Roll-out of the scheme completed in February 2018. It was originally supposed to start in October 2015 but due to legal action was delayed.

TFC is the Government’s new way of providing childcare support to parents and it will eventually replace directly contracted childcare and childcare vouchers currently offered through employers (these schemes are often referred to as Employer Supported Childcare – ESC).

TFC is a UK wide scheme covering England, Scotland, Wales and Northern Ireland. The scheme runs through an online account which claimants can pay into to cover the cost of childcare for qualifying children with a registered provider.

For each 80 pence that is paid into the childcare account, the Government will pay in 20 pence up to a maximum of £500 (£1,000 of for each child that is disabled) of Government support per three month entitlement period. This means that recipients of TFC can receive up to £2,000 support per child per year and £4,000 per child if the child is disabled.

There are some important points to note about the TFC scheme:

Perhaps the most complicated part of the TFC scheme is how it works alongside other childcare support schemes. At present the main Government childcare support is offered through:

In addition, some children are entitled to 15 hours free childcare (which is extended to 30 hours for qualifying people) and other support may be available, for example if you are a student.

The Government's original intention was to remove the tax and NI relief on childcare vouchers (and directly contracted childcare) via employers once TFC was fully rolloed-out. The timing for this was expected to be April 2018 but this has been extended to October 2018. Existing claimants will be able to continue receiving that support as long as it is continued to be offered by their employer.

In addition, there is no entitlement to TFC if a person claims tax credits (any tax credits, not just the childcare element of working tax credit) or universal credit. If a claim for TFC is submitted, then the whole tax credit award will stop automatically.

Some people will be better off claiming TFC than tax credits or universal credit. Similarly some people may be better off claiming TFC than childcare vouchers. However, some people will be better off staying on the other schemes.

The decision about whether to claim TFC and leave an existing scheme is a complicated and important decision. This is especially the case if the claimant lives in certain areas where the universal credit full service has been rolled out.

It is important to look at which scheme is best based on current circumstances but also taking into account future changes that might be known at the time. Only people who are certain that TFC is best for them should make a claim, especially if they are in receipt of other childcare support.

See our TFC and other childcare support section.

You can find out more about TFC by using the navigation on the left hand side. We have sections that explain:

Last reviewed/updated 22 May 2018