Tax-free childcare UK: Are you eligible?

UK childcare costs are among the highest in the developed world. In 2023 the average cost of full-time care for children under two years old was £285 a week, according to children’s charity Coram.

There is government support available. Find out how tax-free childcare works and whether you are eligible. Plus, if you’re on Universal Credit, see what support you could claim.

In this article, we explain:

• How does tax-free childcare work?
• Am I eligible for tax-free childcare?
• Can I get ‘free’ childcare?
• Support for childcare if you’re on Universal Credit
• Are childcare costs going up?
• Other ways to cut your childcare bill

Read more: How does the high-income child benefit charge work?

How does tax-free childcare work?

Many working parents take advantage of tax-free childcare, a scheme available to help with childcare costs. This scheme can help paying for childcare costs for:

• Nurseries, childminders, and nannies
• Breakfast clubs, after school clubs and play schemes
• Some holiday clubs

Under the scheme, the government gives you financial support worth £2 for every £8 you pay for childcare up to a maximum of £2,000 per child per year. You can receive up to £500 every three months for each child.

If your child is disabled, this figure goes up to £1,000 every three months, up to £4,000 a year. Children qualify until they are 11 years old, or 16 years old for those with a disability.

Parents create a childcare account on the government’s online portal. You can only have one account per child, so only one parent can open it. Anyone can pay into the account though, including grandparents or other relatives.

Once you have paid money in, it is then automatically topped up by the government unless you’ve already maxed out on your £500 per quarter limit. The top up should be in your account within one to two days.

Money in this account can then be transferred to an approved childcare provider. You need to check that your nursery provider or childminder is signed up to the scheme.

To estimate how much help you could get, use the government’s childcare calculator.

Am I eligible for tax-free childcare?

To be eligible, you have to meet certain income criteria:

• Both you and your partner (if you have one) have to be in work. Working parents can usually receive it if they are in full time or part time work, on sick leave or annual leave or on shared parental, maternity, paternity or adoption leave
• Both parents must each earn less than £100,000 a year, including bonuses your income. You (and your partner) will need to earn at least the National Minimum Wage or Living Wage for 16 hours a week on average
• Your child must be 11 or under and usually live with you.

You are not eligible for tax-free childcare at the same time as claiming:

• Working tax credit
• Child tax credit
• Universal credit
• Childcare vouchers

You can still get tax-free childcare even while claiming the 15 or 30 free hours. 

If you are separated from your child’s other parent and the child typically lives with you, you only have to take into account your income (and the income of a live-in partner, if you have one). It’s all based on who you live with.

Can I get ‘free’ childcare?

Free nursery hours for children aged three to four years

The allocated time is usually taken as 15 hours a week for 38 weeks of the year. The funding starts the term after your child turns three (for more on when you will get it, see below).

Some families with children aged three to four are eligible for 30 hours of free childcare a week, and some can get free childcare for children from the age of two for 15 hours a week.

Will free childcare hours be available for children under three years old?

Jeremy Hunt’s 2023 budget included plans to provide parents with extra support with childcare costs.

The chancellor announced a £4bn expansion of free childcare to cover children aged between nine months and two years in England, providing 30 hours a week to households where all parents are working at least 16 hours a week.

This will be gradually rolled out from April 2024:

• April 2024: Two-year-olds in households where all parents work at least 16 hours a week will be eligible for 15 free hours of childcare a week
• September 2024: Children aged between nine months and two years old in households where all parents work at least 16 hours a week will be eligible for 15 free hours of childcare a week
• September 2025: Children aged between nine months and two years old in households where all parents work at least 16 hours a week will be eligible for 30 free hours of childcare a week

What about Scotland, Wales and Northern Ireland?

There are similar schemes in Scotland, Wales and Northern Ireland:

• Scotland: You can get up to 1,140 hours of funded early learning and childcare a year if your child is three or four years old. This is around 30 hours a week in term time.
• Wales: Parents can get up to 30 hours a week of early education and childcare for children aged three and four.
• Northern Ireland: Children aged three to four are entitled to at least 12.5 hours a week of funded childcare, or 475 hours a year. This is taken as 2.5 hours a day, five days a week, during term time.

Do I qualify for 30 hours free childcare?

Both parents (or one if you’re a single parent household) must be working to claim 30 free hours. You must have British or Irish citizenship, have a settled or pre-settled status or you have applied and waiting for a decision.

There are certain earning requirements that must be met:

• You must earn a wage equivalent to 16 hours a week at the national minimum or living wage (equal to about £160 a week) 
• Each parent cannot earn more than £100,000 a year
• Self-employed people can also claim the 30 hours as long they meet the above earnings criteria
• If you are self-employed and do not expect to make much profit in the next three months, you can use an average of how much you expect to make over the current tax year.  

You have to re-submit your financial status every three months to let the government know you are still eligible to claim.

People on maternity, paternity or other parental leave may also be eligible for the 30 free hours.

How do I claim free childcare hours?

You can claim the 15 free hours simply by showing your chosen provider your child’s birth certificate.

To get your 30 free hours, you will need to sign in to the government’s childcare portal and take a note of your code. Give this to your childcare provider before the new term starts. They will use this to apply a discount to your monthly invoice.

Free childcare hours are term-time only

Parents should be aware the free hours are offered “term time” only. For parents taking the 15 hours a week option, it means they only get childcare for 38 weeks of the year, equal to 570 hours a year. 

If you would prefer the free hours to run all year round, this reduces to 11 hours a week.

For parents that qualify for 30 hours (1,140 hours a year) the option is again either to:

• Take these in termly instalments
• Or to reduce the weekly hours to 22 to “stretch” the hours over a year

Some providers may not offer the full 30 hours. For example, some pre-schools only offer a maximum of three hours a day, term time only. 

But parents can use the hours for two settings a day. So your child could be in pre-school between ages nine and 12 and spend the rest of the day with a childminder.

Free does not mean free

Don’t be fooled by the term “free hours”. These places are funded by the government, but at a reduced rate than childcare providers would typically charge for a private place. 

Nurseries are not allowed to charge top-up fees, but they are allowed to charge parents for meals, activities, trips and provisions such as sun cream. Providers are likely to charge these extra costs to help plug the funding gap.

For example, one of our writers has a daughter at nursery which charges £20.10 per day even for a fully funded place. However, this is still a significant discount on the £65.70 charged per day for children that don’t yet qualify for free hours.   

When do free childcare hours start?

Currently, free hours are not available until the term after the child turns three. This is a big blow that catches many parents out.

Parents with April babies will particularly feel the sting as they will not be able to claim these hours until September. In contrast, children born in March will get the free hours from April, potentially saving parents thousands of pounds.

Here is when your child can get the free hours:

However, starting in April 2024, access to free childcare hours will be extended to eventually cover children aged between nine months and two years old with two working parents.

What are childcare vouchers?

The government closed the childcare vouchers scheme to new parents in 2018. However, if you were signed up before then, are with the same employer, and it still offers them, you can continue to get childcare vouchers. 

You can’t use childcare vouchers and tax-free childcare at the same time. If you still have the option to choose between the two, you need to work out which will be best for you. It all depends on your personal circumstances.

Use the government’s childcare calculator to work out which type of support is best for you and your child.

Find out more about how to manage your money with a fast-growing family here.

What about childcare benefits?

The government has increased the amount of childcare support for low income parents.

Parents on Universal Credit can now claim back up to £951 for one child and £1,630 for two or more children each month for their childcare costs.

This is a rise of 47% from the previous limits of £646 for one child or £1,108 for two or more children.

The government says that this will benefit low income families by a total of £900 million.

Eligible parents will also have childcare covered for the first month when they enter work or significantly increase their hours.

Parents can also receive up to 85% of their childcare costs back before their next month’s bills are due – meaning they should have money to pay one month in advance going forward.

You can apply via the Gov.uk website and you can make a claim up to three months in advance. You can not receive tax-free childcare at the same time as claiming working tax credit or universal credit.

Are childcare costs going up?

The extra government support announced in the 2023 budget is to help parents grapple with the rising cost of childcare.

Most UK childcare providers are now charging more than last year, according to a survey of local authorities by the charity Coram Family and Childcare (CFC).

This is because of the rising cost of energy and food, meaning childcare providers have to increase their fees to stay afloat.

The charity also found that:

• Half of local authorities say that some or many providers have had to reduce staff numbers
• Nearly half report that some or many providers have reduced their opening hours
• Almost three-quarters of local authorities report that providers are finding it “very difficult” to recruit staff with the necessary qualifications and experience

CFC warned that the struggles faced by the sector are likely to reduce the quality, affordability and
availability of childcare for families. It said that children are at risk of missing out on this vital boost to their development and outcomes.

Other ways to cut the cost of childcare

Here are eight more tips on how to slash your bill.

1. Local community resources

Check with your local authority to see information about childcare and children’s activities in your area. 

Many boroughs will have children’s centres that host weekly activities. Most run over term time, but there should be some events in the holidays.

These activities may include “stay and play” sessions, gardening and cooking clubs. They will either be free or you may be charged a small fee.

Many toddler groups close for the holidays to dissuade children of school age from attending, but some may be running. Check local Facebook pages, church halls or the website of your local authority for details. 

Toddler groups charge a nominal fee for those who can afford to pay.

2. Childcare pooling

Parents could team up to share childcare.

Some might take it in turns to look after the children for a certain number of hours. Others prefer to all be in one place at the same time, with parents taking it in turns to work from another room.

3. Grandparents or family members 

Families often use the informal childcare provided by relatives or friends to help reduce costs. About a third of British grandparents help with childcare, averaging about 10 hours a week, according to Coram.

Many will be actively involved in their grandchild’s learning – helping with homework, painting or reading – and some will help with school or nursery pick-up.

Grandparents providing childcare for grandchildren under the age of 12 may qualify for national insurance credits that could give their state pension a boost. 

It is estimated that thousands of grandparents are not aware they can claim credits, missing out on the chance to boost their retirement income. Find out more on the government’s website here.

4. Nanny sharing

Nannies are only used by a small proportion of parents, mostly because of the cost.

In 2022/23, the average salary for a nanny in the Home Counties and London was £3,358 a month (or £40,300 annually), according to the latest Nannytax Salary Index.

For the rest of the UK, the average cost was £2,999 a month, or £25,984 annually.

Some families choose to nanny share, meaning a nanny works for two or more families and parents split the cost.

All participating families must each register as employers with HMRC and pay for their share of the nanny’s services individually.

Au pairs, where a person from abroad comes to stay with a family, can be a cheaper option than nannies.

5. Try different working formats

The coronavirus pandemic has led to a radical change in working habits, with more people working from home. This has meant some parents have been able to cut down on childcare, reducing costs.

Here are different work patterns to consider:

Flexible working 

You may be able to start and finish work at times that suit you, potentially reducing the childcare hours needed. This could work particularly well if you have a partner who can work different hours.

Part time/job share

Some parents choose to work part-time or job share to spend more time with their children and save money on childcare.

Working from home 

While childcare may still be needed by those who work from home, there is no commuting time to account for, which may cut down the hours of childcare needed.

Term time

Some organisations support term-time working, meaning parents do not have to find childcare for the school holidays. 

6. Cheap and free holiday activities

Here are some ideas for free or cheap activities:

• There are scores of free museums and galleries across the UK, including the British Museum and the National History Museum.
• National Rail offers two-for-one entry at major attractions – including Sea Life Brighton and Kew Gardens – when you travel by train.
• The Woodland Trust has these suggestions for outdoor activities that children will enjoy. They include going on a scavenger hunt and camping out in your garden.
• National cinema chains Odeon, Vue and Cineworld offer cinema tickets from £2.50 during the summer holidays.

7. Get your child benefit

Don’t forget child benefit is paid to parents and guardians to help with the cost of raising children. 

We explain how to claim child benefit.

For the 2023-24 tax year, the rates are:

• Eldest child or only child: £24 a week
• Subsequent children: £15.90 a week

If you or your partner earns more than £50,000, you may have to pay some of the benefit back. If one earns above £60,000, you lose all of the benefit.

8. Shop around and seek out discounts

Whether you are booking an activity or signing up to formal childcare, it’s always worth shopping around to see if you can get a discount or are eligible for government funding.

Useful resources:

• MoneySavingExpert
• Gingerbread charity for single parents
• Turn2Us charity
• Coram (Family and Childcare)

For more guidance on family costs, check out: Starting a family – how much does a baby cost?