Tax-Free Childcare: How much is Tax-Free Childcare worth?

The amount of Government top-up is 25% of any 'qualifying payment' made by the TFC claimant in the entitlement period.

In other words, for each 80p that the claimant pays in to their childcare account, the government will pay in 20p, but this subject to a maximum (see below).

There is often confusion about whether TFC provides 25% or 20% as a top-up. This is because both percentages are used when talking about the scheme. The top-up is 25% of any qualifying payment made by the claimant into the TFC account during an entitlement period - so for example, if £1000 is paid in then the top-up will be £250. This is the same as saying that TFC effectively gives 20% tax relief on childcare costs. So, in this same example, the childcare cost is £1250 and the parents have received 20% of that as a Government contribution.

What is a qualifying payment?

This means a payment made into a childcare account other than a top-up payment or a repayment of the whole/part of any payment made from a childcare account.

More than one qualifying payment can be made into a childcare account during an entitlement period. But the sum of any qualifying payments made into a childcare account in an entitlement period must not exceed £2,000 (or £4,000 in the case of a disabled child). This means the maximum government top-up in any 3-month entitlement period is £500 (£1,000 if the child is disabled).

Over a full year, this means that the claimant can receive up to a maximum £2,000 government childcare support per child and £4,000 per child if the child is disabled. To get these maximum amounts, the claimant would have to pay £8,000 or £16,000 (in the case of a disabled child) into the childcare account. Our understanding is that claimants can pay in more than these amounts, but such payments won't attract a future top-up.

What if the childcare costs fluctuate?

The way the rules work limits the the Government top-up per entitlement period and the top-up is 25% of the claimant's qualifying payment into the childcare account. Claimants whose payments to their childcare account fluctuate or who have sporadic or temporary costs - for example, they may just need  to pay for childcare for over the summer holidays - may not always get the full advantage of the maximum Government top-up over the year. Some thought may need to be given about when is most advantageous to pay into their account in order to get the maximum benefit from the scheme - remembering that the top-up is paid by the Government when the qualifying payment is made into the account and not when the childcare is paid out of the account.

Last reviewed/updated 13 January 2020