Childcare is one of the biggest costs a young family faces, often rivalling the mortgage. Yet a government scheme that knocks a fifth off the bill goes unclaimed by many parents who would qualify. Tax-Free Childcare is worth understanding before you write off the cost as fixed.
How it works
You open an online childcare account and pay money in. For every £8 you deposit, the government adds £2, up to a generous annual cap per child. That is effectively a 20 per cent discount on your childcare. You then pay your provider — nursery, childminder, or holiday club — directly from the account.
Who qualifies
- You and your partner each generally need to be working and earning at least a minimum amount.
- Neither of you can earn above a high income limit per year.
- It covers children up to a set age, with a higher age limit for disabled children.
- The provider must be registered with the scheme — most are.
The catch worth knowing
Tax-Free Childcare cannot be used at the same time as the older childcare voucher schemes or alongside Universal Credit childcare support. Which option is best depends on your circumstances, so it is worth comparing rather than assuming. The government's own childcare calculator does this for you.
Do not leave it on the table
If you are paying for childcare and both working within the limits, this is close to free money — a fifth off a major bill, every month. Set the account up, reconfirm your eligibility each quarter as required, and pay providers through it. Few financial moves offer that kind of guaranteed return for so little effort.