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WITH the cost of living soaring, it’s vital to to make sure you’re taking advantage of any financial help you could get.
Estimates suggest that around 1.3 million families aren’t claiming the tax-free childcare costs that they are entitled to.
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It means families are missing out on either £2,000 or £4,000 every year towards the costs of looking after their kids.
“Tax-free childcare was introduced to help working families meet the cost of childcare and replaces the outgoing childcare vouchers scheme,” said Helen Morrissey, analyst at Hargreaves Lansdown.
And while recent government figures showed that take up is on the rise – there are still many missing out.
Some 512,415 families received up to £2,000 towards the cost of their childcare during the 2021/22 tax year – up from 374,135 in the previous year.
However, HMRC estimates that up to 1.3 million families could be making use of this benefit – meaning more than half of eligible households could be missing out.
Here’s everything you need to know:
What is tax-free childcare?
Tax-free childcare gives families up to £500 per child every three months towards holiday clubs, before and after school clubs, childminders and nurseries.
You could get up to £1,000 if your child is disabled.
That amounts to either £2,000 or £4,000 a year for each child.
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Who is eligible for tax-free childcare?
There are a lot of rules governing who is eligible for tax-free childcare.
It depends on if you’re working, what your household income is, your child’s age and your immigration status.
You can usually get tax-free childcare if you, and your partner (if you have one), are:
- in work
- on sick leave or annual leave
- on shared parental, maternity, paternity or adoption leave
If you’re not currently working but your partner is, you may still be eligible.
You will have to also be claiming one of the following benefits:
- Incapacity Benefit
- Severe Disablement Allowance
- Carer’s Allowance
- Contribution-based Employment and Support Allowance.
You can apply if you’re starting or restarting work within the next 31 days.
Your income will also affect your eligibility and you’ll need to expect to earn a certain amount over the next three months.
This is at least the National Minimum Wage or Living Wage for 16 hours a week on average.
For example, at the moment you would need to earn at least £1,853.28 – the National Living Wage for people over 23.
If you have a partner, they’ll need to expect to earn at least this much too.
If you’re self-employed and do not expect to make enough profit in the next three months, you can use an average of how much you expect to make over the current tax year.
This earnings limit does not apply if you’re self-employed and started your business less than 12 months ago.
If you or your partner have an expected total income over £100,000 in the current tax year you will not be eligible, including any bonuses you expect to get.
Check the government’s website for more details on the eligibility criteria.
Is my child eligible?
Your child must be aged 11 or under and will usually need to live with you.
Each child stops being eligible on September 1 after their 11th birthday.
Adopted children are eligible, but foster children are not.
If your child is disabled you may get up to £4,000 a year until they’re 17.
To receive this, your child will need to:
- Get Disability Living Allowance, Personal Independence Payment or Armed Forces Independence Payment
- Be certified as blind or severely sight-impaired
How can I apply for tax-free childcare?
You can apply for tax-free childcare on the government’s website.
When you’re ready to apply, you’ll need your details including your:
- National Insurance number
- Unique Taxpayer Reference (UTR), if you’re self-employed
It takes around 20 minutes to apply.
“You will need to sign up for an online account and for every £8 paid in, families will automatically receive an additional £2 in government top-up,” Helen said.
“It means you can use the scheme to pay for up to £10,000 worth of childcare per year for each child. You would pay £8,000 of it with the government contributing £2,000.”
Once the money in your account is shown as “cleared funds” you can use it to pay your childcare provider.
As part of your application, you’ll also find out if you’re eligible for 30 hours free childcare within seven days.
Are there any catches?
“You cannot get tax-free childcare at the same time as claiming working tax credit, child tax credit, Universal Credit or childcare vouchers,” explained Helen.
“If you successfully apply for tax-free childcare, your working tax credit or child tax credit will stop straight away, and you cannot apply for them again.”
If you already claim one of these benefits you should work out which scheme is best for you.
You can use the government’s childcare calculator to work out which type of support will leave you better off.
However, you can get tax-free childcare at the same time as receiving 30 hours free childcare.
What else is available?
- Free childcare
“All three- to four-year-olds qualify for a certain amount of free childcare, though this varies depending on what part of the UK you are in,” explained Helen.
“In England for instance, you are currently entitled to 570 hours of free childcare a year.
“This is usually taken at up to 15 hours a week for 38 weeks of the year though there is some flexibility, and it can be used throughout the year, not just term time.
“You just need to tell your provider you would like to take advantage of the 15 free hours when you sign up.”
- Childcare vouchers
This scheme is no longer accepting new applications and you cannot use them if you claim tax-free childcare.
However, if you joined up before October 2018 and have remained with the same employer and made at least one payment into the account in the last year then you could continue to receive vouchers.
- If you are on Universal Credit
If you are on Universal Credit you can claim back up to 85% of the cost of childcare, if you’re in work, and the child is under 16.
This is up to a maximum of £646 for one child, and £1,108 for two or more children.
However, you’ll only be reimbursed after your childcare has taken place and you will need to provide evidence of your costs. You can claim through your universal credit account.
- If you live in Scotland
If you live in Scotland and are on a low income and look after a child under six, you may also be able to apply for the Scottish Child Payment of £20 a week.
You need to be claiming a benefit like Universal Credit, Income Support or Jobseekers Allowance to be eligible.
If successful, you’ll get the payment every four weeks until your child turns six.
