Tax-Free Childcare: Paying into an account
This page explains how payments can be made into a childcare account and which payments attract top-ups.
- How are payments made into an account?
- What is a qualifying payment?
- Timing of payments into an account
- Withdrawing payments
- More than one child
Payments into the childcare account can be made by direct debit (not credit card), standing order or bank transfer. Payments cannot be made by credit card. Money deposited in the childcare account, along with any Government top-up, should be visible straightaway but takes one working day before any amount paid in is available as cleared funds and show in the 'available funds' column on the childcare account balance screen.
Anyone can pay into the account, not just the account holder, as long as they have the relevant details for deposits. There are available on page 5 of HMRC's guidance on using accounts (Please note HMRC have withdrawn this official guidance as it is no longer being updated so it cannot be relied on to remain up to date).
A qualifying payment means any payment into a childcare account other than a top-up payment or a repayment of the whole or part of any payment made from the childcare account (not including withdrawals made by the account holder).
As explained above, anyone can make a qualifying payment into the account during an entitlement period, provided that the account-holder has made a valid declaration of eligibility for the entitlement period, and the child is a qualifying child at the time of payment.
There are two separate limits which are:
- £4,000 for a disabled child. A disabled child for TFC is a child who is certified severely sight impaired or blind by a consultant ophthalmologist, or for whom any of the following are payable:
- disability living allowance
- personal independence payment
- armed forces independence payment
- an allowance or payment made under the law of a prescribed state (EEA or Switzerland) which is substantially similar in character to any of the above.
- £2,000 per 3-month entitlement period for all other children.
Only qualifying payments will attract a Government top-up. However, during the consultation process when the scheme was designed, the Government confirmed that people could make additional payments (not attracting a Government top-up) into the account to allow all costs to be managed in one account. It is currently not clear whether this is still possible, given the wording in the legislation around qualifying payments and we are checking this with HMRC.
It is important to remember that the Government top-up is paid as soon as a qualifying payment is made into the TFC account. It does not matter when the childcare provider is paid. This means that claimants with variable childcare costs should give some thought to their childcare costs over the year in order to try and get maximum benefit from the scheme.
For example, if childcare costs over 4 entitlement periods are as follows:
- Period 1: £1000
- Period 2: £1000
- Period 3: £3500
- Period 4: £2500
In order to have a £1000 in the account for period 1, the claimant will need to pay in £800 and the Government will top up with £200. The same will happen in period 2. In period 3, the maximum top-up available is £500 based upon the claimant paying in £2000 but that won't be enough to pay the childcare for that period so the claimant will need to add an additional £1000. In period 4, the claimant will pay in £2000 and will receive £500 top-up.
Over the year, the childcare costs total £8000 with the claimant paying £6600 and the Government top-up covering the remaining £1400. The claimant in this scenario might find this difficult to understand as they haven't received a full 25% top-up on their £6600. This is because they breached the cap in entitlement period 3 and so £1000 of their costs did not attract any top-up payment.
One way to remedy this would be to pay more in period 1 and 2 and less in period 3. They could pay £1200 in period 1 and another £1200 in period 2. Both periods would receive a £300 top-up. In period 3, they would pay £2000 and receive £500 top-up and the same in period 4. That means that over the year, the childcare costs still total £8000 but the claimant will pay £6400 and the Government will pay £1600.
By making payments early, they gain an additional £200 of Government support towards their childcare costs.
Apart from payments to the childcare provider, the claimant is free to withdraw money from the account but not in that case, the amount withdrawn will be deducted from the total sum in the account that attracts the Government top-up payment. If the withdrawal amount has already attracted the TFC top-up, then the value of the top-up that corresponds to the value of the withdrawal has to be repaid to HMRC. So, for example, for every £8 that the claimant withdraws (i.e. doesn't use for paying childcare). HMRC will take back it's £2 contribution.
The account provider notifies HMRC about the qualifying payments in the childcare account and HMRC pays the 25% top-up into the childcare account.
Where the TFC claimant has more than one eligible child, they will have a separate childcare account for each child. Childcare costs for each child must be paid out of the correct childcare account and it is not possible to transfer money between childcare accounts. It is therefore important to ensure that payments are made into the correct amount.
Last reviewed/updated 29 September 2023