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Tax-Free Childcare Account: How does it work?

31 March 2023

If your child attends a preschool, childminder, or after school club, and you need some help in paying the costs, the tax-free government scheme could be your answer. The average price for a parent paying full-time childcare has risen dramatically recently. For a child under 2, families must find around £230 a week to cover the costs, which leaves many working parents wondering if it makes more financial sense to stay at home. 

However, there are options to support working parents, and amongst other options, the tax-free childcare system could significantly reduce your bills.

What is tax-free childcare?

If you’re new to the tax-free childcare scheme, it's an opportunity that provides 20% of your bill, so for every £8 you pay, the government will pay £2. The government will pay up to £2,000 per year and it is the same across England, Scotland, Wales and Northern Ireland. 

To be eligible, you and your partner must work in the UK and work at least 16 hours a week, or the financial equivalent. It’s available for children aged 0-11, and you can also use it for some breakfast, afterschool and holiday clubs if the setting has signed up for the scheme.

How does it work?

1 - Firstly, you must set up an online government account at https://www.gov.uk/tax-free-childcare. Once you're set up, you’ll receive a Government Gateway ID which you’ll use each time to sign in. This secure area is where you’ll receive messages, make all tax-free childcare transactions, apply for additional children, and keep your contact details current. 

2 - To make a payment, log in to your childcare account and follow the tab Your Tax-Free Childcare Accounts. From here, you can ‘Manage Account’ and add your child’s preschool setting and your bank account details. When you’re ready to pay, follow the Pay Money In icon, and make the transaction, remembering only to add 20% of your overall bill. If you’re unsure how much of the overall bill you’ll need to pay, use this handy tax-free childcare calculator https://taxfreechildcarecalculator.com/.

3 - Over the coming days, the government will top up your money with the additional 20% and send you a message to let you know it’s ready. At this point, you must go back into your account and activate the payment to your childcare provider. The total fee will then go straight into their bank account, and your bill will be paid. It may sound a little complicated to start, but once you’ve done it once, it’s easy and so worth it!

3 - Finally, don’t forget to refresh your account. Every 3 months, you’ll receive a message prompting you to reconfirm your details and check that your financial situation remains the same. If nothing has changed, this is as simple as clicking a button. However, if you forget or don't do it before the given date, you’ll need to reapply and possibly lose out on the scheme in the meantime.

Photo by Anastasia Shuraeva

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