Tax-Free Childcare: Paying for childcare
This section explains payments going out of the childcare account for childcare costs.
- What childcare costs can be paid out of the childcare account?
- What is qualifying childcare?
- What is registered or approved childcare?
- What is the main reason test?
- How are payments made to childcare providers?
Only payments in respect of qualifying childcare for the relevant child can be made from the account. If the claimant pays costs for more than one child, it is very important that they make sure that they are paying the correct costs out of the right account for each child. Money in an account for child one cannot be used to pay childcare costs for child two and vice versa, nor can money be transferred between childcare accounts.
It is important to be aware that the qualifying childcare test applies at the point the payment is made out of the account - not at the point at which any top-up is paid into the account.
For the purposes of TFC, childcare means any form of care or supervised activity for a child that is not provided in the course of the child's compulsory education. However, for the childcare to be qualifying, there are two requirements:
- It must be registered or approved childcare; and
- The main reason, or one of the main reasons, for incurring the costs of the childcare is to enable the person to work or where the person has a partner, to enable both the person and the person's partner to work.
The full definition of registered or approved childcare is contained in Regulation 3 of the Childcare Payments Regulations (note that this link goes to the original version and may not include any subsequent ammendments).
Childcare is not registered or approved if:
- It is provided for a child by the child's parent, step-parent or the parent's partner.
- It is provided for a child by a relative of the child, wholly or mainly in the child's home (relatives includes grandparent, aunt, uncle, brother or sister either by full blood, half blood or by marriage or civil partnership). This means that a relative who is an approved or registered childminder and who cares for the child in their (the relatives) home may qualify - assuming they don't have parental responsibility or are a foster parent of the child.
- It is provided by a person with parental responsibility for the child.
- Is it provided by a person who is a foster parent of a child.
However, even if the childcare provider is registered or approved, payments cannot be made to them via the childcare account unless they have signed up to the scheme with HMRC.
As explained above, the main reason, or one of the main reasons, for incurring the costs of the childcare must be to enable the person to work (or where the person has a partner, to enable both the person and the person's partner to work).
It is not clear yet to what extent HMRC will check this but claims could be subject to compliance checks. It is arguable, for the wording of the legislation, that as long as work is one of the main reasons (in other words, there might be other main reasons) then it should be fine, but again it is not clear how HMRC will interpret this.
HMRC included some basic examples of how the tests work in their guidance (see Page 21 onwards). However, please note HMRC have withdrawn this official guidance as it is no longer being updated cannot be relied on to remain up to date. The information may still be useful background as it confirms that where someone has an unexpected change of circumstances, such as a job loss, they can continue to pay for childcare where had already been booked to allow them to work.
Once claimants have set up their childcare account and have available funds, including the Government top-up contribution, paid in by HMRC, they can pay their childcare provider using their childcare account, via the GOV.UK website.
Claimants can identify their childcare provider in the TFC system by searching for the childcare provider's name, address, postcode and/or regulator reference.
Payments take at least 3 working days to reach the childcare provider. So it is important that plenty of time is allowed before the payment is due.
The childcare provider must be registered with TFC in order to receive their payment via TFC. There is separate guidance available for childcare providers on the GOV.UK website.
Last reviewed/updated 29 September 2023