Eligibility
Both parents must earn at least £2,167 per quarter (equivalent to 16hrs/week at minimum wage) and neither parent can earn over £100,000. The child must be under 12 (or 17 if disabled).
How Much You Save
If you spend £10,000/year on childcare, the government contributes £2,000. You pay into a special account, and the government tops it up by 25%. Maximum of £2,000/year per child (£4,000 for disabled children).
How Tax-Free Childcare Works
Tax-Free Childcare provides a government top-up of 20% on childcare costs, up to a maximum of £2,000 per child per year (£4,000 for disabled children). For every £8 you pay into your Tax-Free Childcare account, the government adds £2. Both parents must be working and each earning at least £8,670 per year (equivalent to 16 hours per week at National Living Wage) but less than £100,000. Self-employed parents qualify on the same basis.
This benefit can be used for registered childminders, nurseries, nannies, after-school clubs, and play schemes. It is not compatible with the childcare element of Universal Credit or employer childcare vouchers (the old scheme), so you must choose which suits you best. For most families earning above the UC threshold, Tax-Free Childcare provides better value. You can open an account at any time through the Childcare Service on gov.uk. The account stays open even if your circumstances change temporarily, giving you flexibility. For higher earners, consider whether salary sacrifice for childcare could provide additional tax and NI savings on top of this benefit.