Tax-free childcare – What’s it all about?

The new childcare scheme, expected to be launched by the government in the coming weeks, will replace childcare vouchers, allowing working parents to obtain financial support for childcare costs.

What is Tax-free Childcare?

Tax-free Childcare is a new government scheme for England, Scotland, Wales and Northern Ireland, offering family support for childcare expenses. It aims to replace Employer-Supporter Childcare – which is only open to full-time employees – and intends to provide families with greater financial security.

How does it work?

Eligible parents will be able to open a tax-free childcare online bank account, that they can use for childcare expenses.

Through this account, the government will pay 20% of their yearly childcare costs (the equivalent of the amount of tax most people pay), capped at £2,000 per child per year (or £4,000 if the child is disabled), for example, for every £80 parents spend on childcare, the government will pay in an extra £20.

What are the eligibility criteria?

Families will be able to obtain Tax-Free Childcare when:

  • The child is under the age of 12 (or 17 if the child is disabled);
  • Both parents work; and
  • Each parent earns at least £115 a week, but not more than £100,000 per year.

How does it differ from the current childcare vouchers?

Unlike Employer-Supported Childcare, which is only open to full-time employees at the employer’s convenience, the Tax-Free Childcare scheme is available to any parent who meets the eligibility criteria. This means you can apply for the scheme if you are:

  • Self employed
  • Working part time
  • On maternity, paternity or adoption leave
  • On paid sick-leave, or
  • Starting your own business.

On top of this, to support parents who are starting a  business, the government has introduced a ‘start-up’ period during which, the minimum earnings criteria aren’t required.

What if I am already registered with Employer-Supported Childcare?

Parents already registered at the Employer-Supported Childcare who do not wish to switch to Tax-Free Childcare are free to continue using the old scheme (as long as their employer offers it), but cannot use both schemes at the same time. Employer-Supported Childcare will remain open to new entrants until April 2018.

This childcare savings calculator can help you find out which of the two schemes is the most attractive for your family.

When does it start?

The new scheme will be rolled out gradually to families, starting with the parents of the youngest children, but parents will be able to apply for all their children at the same time. According to the government, all eligible parents should be able to join the scheme by the end of 2017.


Louise Hennon

Paralegal at Rocket Lawyer UK
Louise is a paralegal at Rocket Lawyer UK. She passed the Paris Bar Exam and has a law degree from Sciences Po Paris Law School. She has a keen interest in corporate matters and commercial disputes, and believes everyone deserves high-quality legal services.