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:
- Children are only covered by the scheme up until the last day of the week in which the 1st September following their 11th birthday falls. If they are disabled then this is extended to their 16th birthday.
- The scheme is designed to be ‘digital by default’ and so claims are made and managed online with other options available for those who cannot make online claims
- In order to get support from the TFC scheme the claimant (and their partner) need to meet a minimum earnings requirement from paid work. The scheme is open to employed and self-employed people. See our paid work section for more details.
- Once an initial claim is made, claimants will be required to make a new declaration (reconfirmation) every 3 months.
- Those with adjusted net income over £100,000 a year cannot claim
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:
- Employer supported childcare (childcare vouchers, directly contracted childcare and workplace nurseries)
- Working tax credit (childcare element)
- Universal credit (childcare element
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:
- Who can claim TFC - This section explains the roll-out of TFC, who is an eligible person, how a partner is defined for TFC, the eligibility requirements for claiming, what is meant by paid work and which children qualify for support.
- How does TFC work? - This section explains how TFC entitlement periods work, how much a claimant will get through the scheme, how to claim and manage an account, how and when payments can be made out of the accounts, what counts as qualifying childcare and issues around closing an account.
- TFC and other childcare support - This section explains how TFC interacts with other childcare support schemes including tax credits, universal credit, housing benefit, 15/30 hour free childcare and employer supported childcare (childcare vouchers). It also gives some guidance on choosing between the schemes.
- Dealing with HMRC - This section outlines how to contact HMRC, how overpayments of TFC occur and can be recovered, how to complain, appealing a TFC decision, contacting HMRC about TFC and dealing with compliance checks and penalties
Last reviewed/updated 22 May 2018