Tax-Free Childcare: Other benefits and childcare support
In order to be an eligible person for TFC, there are 8 eligibility conditions that apply. Three of those conditions relate to receipt of certain benefits or other childcare support and we explain the requirements of those conditions in more detail on this page.
- The three eligibility conditions
- Universal Credit
- Relevant childcare schemes
- Other childcare support
The three eligibility conditions
In order to qualify for TFC, in addition to meeting the five other eligibility conditions, neither the claimant nor their partner:
- May be claiming Universal Credit
- Be in a relevant childcare scheme
- Be receiving other childcare support
Strict reading of the rules means that if universal credit is payable to the TFC claimant or their partner for any assessment period that includes the date of declaration or any part of the TFC entitlement period - they will not be an eligible person for TFC purposes.
For this purpose, 'payable' means actual payments of UC but also includes amounts that would be payable but for the reduction of the UC award to nil under relevant legislation.
Similarly, if a claim has been submitted for UC that would result in UC becoming payable for any assessment period that includes the date of declaration or any part of the TFC entitlement period - again they will not be an eligible person for TFC purposes.
For this purpose, when it is in relation to opening a childcare account, 'entitlement period' means the three months starting with the date of declaration.
Where a person is a resident of a prescribed state (EEA or Switzerland) who is doing paid work in the UK, or their partner, receives a credit similar to UC the rules in this section would apply.
However, strict application of this rule would make it very difficult for a person to change from claiming UC to move over to get support through TFC. HMRC say that existing UC claimants who want to change and receive support through TFC should be encouraged to apply for TFC whilst still on UC. The live UC claim will cause the TFC application to fail and HMRC checks to see if they fail the TFC application for anything other than the UC-related condition. The claimant will then receive an eligibility fail message on their TFC application and this will reveal the fail reasons. If the only reason they have received an ineligible result on their TFC application is because they are in receipt of UC, they will be advised of this and can then go ahead and cancel their UC claim and apply for TFC. HMRC further explained they have a message on the GOV.UK website that tells people to wait until they get a decision on their TFC application before cancelling their uc claim to ensure that TFC applicants do not cancel their UC claim before they have had confirmation they are eligible for TFC, and so potentially miss out on government support entirely for a period.
What if someone claims UC after TFC
The information above applies where UC is applied for before the TFC claim is made. However, what is the situation where someone wants to claim UC when they have already claimed TFC? We explain more about that in our TFC and other childcare support section.
'Relevant childcare schemes' essentially means Employer Supported Childcare schemes - childcare vouchers (under Section 270A of ITEPA 2003) and directly contracted childcare (under conditions A to D Section 318A ITEPA 2003). Workplace nurseries are not affected by TFC and so a claimant can benefit from a workplace nursery and claim TFC support as well.
The general rule is that to be an eligible person for TFC neither the claimant nor the partner can be receiving childcare vouchers or directly-contracted childcare from their employer. The legislation is very specific about what counts as receiving that support. In order to meet this eligibility condition neither the claimant nor their partner must be an eligible employee in relation to a relevant childcare scheme. Eligible employees are defined under Section 270AA (childcare vouchers) and Section 318AZA (directly contracted childcare) ITEPA 2003.
However, in relation to opening a TFC account, if the claimant or their partner intends to give their employer a 'childcare account notice' before the end of the TFC entitlement period (3 months form the date of declaration) then they will be an eligible person for TFC and can continue with the claim.
A 'childcare account notice' can also be used in a situation where a claimant forms a new relationship with a partner who receives childcare vouchers or directly contracted childcare from their employer. In that case, as long as the new partner plans to give a notice to their employer before the end of the TFC entitlement period for which the declaration is made they will be an eligible person for TFC and can continue with the claim.
A partner is treated as a 'new partner' if at the date of declaration they have not been the claimant's partner when any earlier declaration of eligibility was made.
What is a childcare account notice?
A childcare account notice is a written notice informing the employer that the employee wishes to leave the scheme in order to open a childcare account or enable the employee's partner to do so. There is no prescribed form for this and a written letter from the claimant or their partner to the employee should suffice. We recommend a copy is kept for their own records and a copy of any response from the employer.
Failure to give a childcare account notice
Where TFC is claimed on the basis that the claimant or their partner plan to serve a childcare account notice, but then they fail to do so, HMRC have the power to recover the top-up payments.
The person who made the declaration is liable to pay HMRC an amount equal to the sum of any top-up payments made to the person for their entitlement period.
Where a person is a resident of another EEA country who is doing paid work in the UK, or their partner, is part of a similar employer childcare scheme the rules in this section would apply.
The general rule is that neither the claimant nor their partner will be an eligible person for TFC if they are receiving other childcare support or have made a claim for that childcare support that covers the relevant period.
The relevant period means any period which includes the date of the declaration, any part of the entitlement period for which the declaration is made or falls within that entitlement period. For opening a new childcare account, the period is 3 months from the date of declaration.
Other childcare support means any payments towards the costs of childcare which are made out of funds provided by a national authority which includes payments made by Ministers of the Crown, Scottish and Welsh Ministers or a Northern Ireland Department.
What schemes will fall under childcare support?
It is not entirely clear which schemes fall under this definition. In the explanatory notes to the Childcare Act 2014, the childcare grant administered by the Students Loans Company is specifically mentioned as covered by this section. Tax credits do not fall under this provision- but other parts of the TFC legislation mean that if a tax credit claimant (whether receiving the childcare element of working tax credit or not) makes a declaration of eligibility for TFC, their tax credit award will be terminated. We discuss this further in the TFC and other childcare support section.
Our understanding is that it does not include the childcare earnings disregard in housing benefit or payments made directly to their childcare provider such as free 15 hours or 30 hours childcare provision. However if a potential TFC claimant is in receipt of any other childcare support, they should check the position with HMRC. Similarly if an existing TFC claimant wants to make a claim for other childcare support they should check the position with HMRC to understand whether TFC will be affected.
Last reviewed/updated 3 July 2024