Tax-free childcare Q&A

The Government has announced a new scheme for tax-free childcare for working families. Once fully up and running, the Tax-free Childcare scheme will be worth up to £1,200 per child, and so will save a typical working family with two children under 12 up to £2,400 a year.

The following will answer some of your key questions about the scheme, or you can download our childcare infographic

Download our childcare infographic (PDF 807KB)

What has been announced today?

Working families will be able to claim 20% of childcare costs of up to £6,000 for each child under 12 under a new Tax-Free Childcare scheme, to be phased in from autumn 2015;
At the same time, the current system of vouchers and directly contracted childcare through Employer Supported Childcare (ESC) will be closed to new entrants;
Any family not claiming tax credits and later Universal Credit, where all parents are in work but neither earns £150,000 or more can claim;
The Government will also increase childcare support within Universal Credit by £200m, equivalent to 85% of childcare costs for a lone parent or both parents in a couple paying income tax;
The details of how to provide this support will be determined as part of a consultation to ensure the two schemes operate effectively together.

What does it mean for me?

You will be eligible for the new scheme if you are a lone parent in work, or you are in a couple and both of you work, you are not receiving tax credits or Universal Credit, neither of you earns over £150,000;
For each £1 of your childcare costs the Government will pay 20p, up to £1,200 every year, for each child under 12;
If you are a current member of an Employer Supported Childcare scheme then you can choose to either remain in that scheme, or switch to the new scheme if you are eligible. You will not be able to claim both but do not have to make a choice at this stage. ESC will also continue to be open to new joiners until the tax-free childcare scheme is available from autumn 2015;
There will be an additional £200m to support households on Universal Credit with their childcare costs. Parents on lower incomes will be able to keep more of their earnings to support their families and make it pay to work more hours;
A consultation will be undertaken this year to confirm the details of the new offer and ensure it operates effectively with the scheme for those not on Universal Credit.

How does the new scheme work?

Parents can set up an online account which the Government will top up and turn into a voucher;
- Example 1: Mr and Mrs Green pay £400 a month for John’s nursery school fees. They set up an account with a childcare voucher provider and each month they pay in £320, which the Government tops up with £80. They instruct the voucher provider to pay John’s nursery £400. Over the year, Mr and Mrs Green will save £960;
- Example 2: Miss Robinson pays £500 a month each for her twins’ nursery care. She sets up an account with a childcare voucher provider and each month she pays in £800, which the Government tops up with £200. She instructs the voucher provider to pay the twins’ nursery £1,000. Over the year, Miss Robinson will save £2,400.

How and when can I apply?

The new vouchers will be phased in from autumn 2015. You do not need to do anything now;
Further detail on the new scheme will be published after consultation.

How much will I get?

A working family can receive a voucher top-up worth up to £1,200 a year, dependent on costs. The amount of support you claim will be paid directly into your voucher account.

How will this be phased in?

From autumn 2015 the new scheme will be available to all families with a child under 5 and the scheme will build up over time to include all children under 12;
We will shortly consult on the best way to do this, including how employers who wish to can continue to play a role.

I live in Scotland/Wales/Northern Ireland, will I be eligible?

This scheme will be available to qualifying families across the UK.

Can I claim for my teenager?

Once fully up and running, parents can claim support for each child under age 12;
Exceptions will apply for families with disabled children, who will be able to claim this support until age 16, in line with existing ESC rules.

I claim tax credits, can I claim this support?

No, but you may already be able to claim 70% of childcare costs if you are a lone parent or you and your partner each work at least 16 hours a week;
Tax credits are being phased out and replaced by Universal Credit. Universal Credit will be a much simpler system making it easier for people to understand their entitlements;
The additional childcare support will be phased in as childcare support moves from Working Tax Credit to Universal Credit. It will reduce childcare costs for low income working families and will enable more families to work more hours, to spend less on childcare and take home more of their earnings;
Under Universal Credit, those working fewer than 16 hours will also be able to claim support for childcare costs.

I work full time, but my partner is unable to work, are we eligible?

Families where all parents are in paid work, but not already receiving support through tax credits, will be eligible for the new scheme if they have a child under 12 and their childcare provider is registered or approved (the carer can confirm this);
We expect some exemptions to apply, for example, where one parent is unable to work as they are a carer or disabled, and will consult on whether other circumstances should be taken into account.

Will the new scheme be payable during maternity/paternity leave?

If parents are eligible to receive Tax-Free Childcare before they go on maternity or paternity leave, they will continue to be eligible throughout the maternity/paternity period.

What’s happening to ESC?

We will close ESC to new entrants only from autumn 2015. This means that anyone who is in a scheme before then can choose to remain in it, or switch to the new scheme if they are eligible;
We will also work with employers so that those who want to can continue to play a role in supporting employees with childcare costs.

I’m currently a member of my employer’s ESC scheme, how will this affect me?

Changes will not be made until autumn 2015;
Parents who are in ESC schemes in autumn 2015 can choose to either remain in that scheme, or switch to the new scheme if you are eligible. You will not be able to claim both and will not be able to switch back to ESC once you choose to leave.

How will I know if I’m better off switching?

We will make every effort to ensure that options for parents are clear before they are required to make decisions. You do not need to do anything now.

What about workplace nurseries? Will my employer still be able to offer me this scheme?

The tax and NICs relief currently available on workplace nurseries will continue to be available to all employees, where offered. This will not be closed to new entrants.

If I move jobs will I be able to claim ESC in my new job if they have a scheme?

No. If parents leave a scheme, they will not be able to join another, but may be eligible for the new Tax-Free Childcare scheme.

Can I pay my childminder with my voucher?

Yes, if they are registered with Ofsted or the relevant authority in Scotland, Wales or Northern Ireland. You must use 'registered' or 'approved' childcare to get any Government support with your childcare costs. This can include all types of childcare, for example nurseries, playschemes, childminders, nannies and school-based care.

Can I transfer my allowance between my children?

The cap set out is on an individual child basis, but we want this new scheme to work as well as possible for families so will consult on the detail shortly.