Help with childcare costs
The cost of childcare can eat up a large chunk of the family budget. Fortunately, there’s plenty of help available from the government and employers - from tax credits and tax-free vouchers to free childcare.
- Working Tax Credit - the childcare element
- Free early years education and childcare
- Direct payment for childcare
- Childcare vouchers
- Workplace nurseries
- Tax-Free Childcare Scheme (from 2017)
Working Tax Credit – the childcare element
Child Tax Credit
When you apply for Working Tax Credit, you’ll be told if you’re also eligible for Child Tax Credit to help with the costs of bringing up a child.
What is the childcare element?
The ‘childcare element’ is one of the elements that make up Working Tax Credit.
If you’re eligible, it could cover up to 70% of your childcare costs.
Who gets it?
You can apply for the childcare element of Working Tax Credit if you:
- Work at least 16 hours a week (if you’re in a couple, you both need to work at least 16 hours a week)
- Pay for registered or approved childcare
How much is the childcare element?
With the childcare element, you can get help with up to 70% of your childcare costs.
The table below shows how much you could get in the 2016-17 tax year:
|Number of children||If you pay up to:||You could get up to:|
|1||£175 a week||£122.50 a week|
|2 or more||£300 a week||£210 a week|
If you pay more than this for childcare, you won’t be able to claim the childcare element.
If you qualify for the childcare element, you won’t necessarily get the full amounts.
How much you get will depend on:
- Your income
- The hours you work
- Your childcare costs
From 11 April 2016, working families on Universal Credit might claim up to 85% of their monthly childcare cost.
The most you can get is £646.35 a month for one child, and £1108.04 a month for two or more children.
You can only claim if your childcare is provided by a government registered or approved childcare provider.
Free early years education and childcare
Choosing the right childcare
Find the right childcare option for you with our guide to childcare options.
What is free early years education and childcare?
All three and four-year-olds in the UK are entitled to some free early education or childcare.
How much you can get depends on which country you live in.
All three and four-year-olds are entitled to 570 hours of free early education or childcare every year.
Some two-year old’s are entitled to free early years education and childcare if you claim certain benefits or have a disability.
Most people take this as 15 hours each week for 38 weeks.
You can use these free hours at Ofsted registered childcare providers, such as:
- Nurseries and nursery classes
- Playgroups and pre-schools
- Registered childminders
- Sure Start Children’s Centres
From September 2016, a pilot in some areas will extend this to 30 free hours a week.
An additional 15 hours of free childcare is being piloted and should be available nationally from September 2017.
Those eligible will get a total of 30 hours.
It’s unlikely you’ll be eligible for the additional hours if in the family one parent doesn’t work, or both parents don’t work.
Each parent will need to earn the equivalent of 16 hours a week at the national minimum or living wage and earns less than £100,000 a year.
Three and four-year-olds can get 600 hours of free early learning and childcare every year.
This works out at around 16 hours every week for 38 weeks.
Some families with two-year-olds might also qualify if they receive certain benefits.
Three and four-year-olds can get 10 hours of free early education a week for 38 weeks.
If you live in a Flying Start area you might be able to get free part-time childcare when your child is two.
Children are entitled to at least 12.5 hours of free pre-school education a week for 38 weeks in the year before they start Primary One.
Direct payment for childcare
The cost of childcare will depend on the option you choose and your location. For a rough idea of childcare costs, see our average childcare costs comparison.
What is direct payment?
Payments from your employer to your registered or approved childcare provider.
This is also known as ‘directly contracted childcare’.
How much is direct payment?
Your employer can pay up to the following amounts each month without you having to pay tax or National Insurance on it:
- £243 a month if you’re a basic rate taxpayer (20%)
- £124 a month if you’re a higher rate taxpayer (40%)
- £110 a month if you’re an additional rate taxpayer (45%)
If your employer pays more than this to your childcare provider, you’ll have to pay tax on it, unless you earn less than £8,500 a year.
Did you know?
Most people are better off claiming tax credits instead of using salary sacrifice for childcare vouchers.
What are childcare vouchers?
Childcare vouchers are given to you by your employer to help pay for childcare.
You can choose your own childcare provider, as long as they’re registered with or approved by Ofsted.
The vouchers might be offered as a benefit on top of your ordinary pay or through a ‘salary sacrifice’ scheme where you permanently give up some of your pay in return for childcare vouchers.
How much is it?
The amount you get depends on whether you pay Income Tax at the:
- Basic rate (20%)
- Higher rate (40%)
- Additional rate (45%)
Each parent can get the following amounts in childcare vouchers without having to pay tax or National Insurance on them:
- £243 a month (£55 a week) if you’re a basic rate taxpayer
- £124 a month (£28 a week) if you’re a higher rate taxpayer
- £110 a month (£25 a week) if you’re an additional rate taxpayer and you joined the childcare voucher scheme on or after 6 April 2011.
You’ll pay tax on any extra vouchers your employer gives you, unless you earn less than £8,500 a year.
Childcare vouchers from your employer can affect the amount of tax credits you get.
Vouchers in a few circumstances can be worth more. If you can’t claim tax credits, you’ll always be better off using vouchers.
Another example is, if your childcare costs are above the current childcare limits of £175 a week for one child or £300 for two or more children.
What is a workplace nursery?
Some employers set up their own nursery, either at your place of work or at another location.
How much is a workplace nursery?
Your employer decides how much you pay for access to a workplace nursery.
But whether it’s free or subsidised, it counts as a tax-free perk of your job.
Speak to your employer to find out if they offer a workplace nursery.
Tax-Free Childcare Scheme (from 2017)
What is the Tax-Free Childcare Scheme?
A new tax-free childcare scheme due to be introduced in early 2017.
Under the new scheme, you’ll get 20% of your yearly childcare bill paid for by government.
This means that for every 80p you pay in childcare, the government will put in 20p.
Who gets it?
The scheme will be available for children under the age of 12 (17 for disabled children), with the youngest children getting into the scheme first.
There is a list of criteria for parents to meet in order to qualify for the scheme.
For more information, visit the Turn2Us websiteopens in new window.
Unlike childcare vouchers, the scheme will also be available to self-employed parents.
How much is the Tax-Free Childcare Scheme?
You’ll pay into an online account to cover your childcare costs.
The government will then top up your account with a 20% contribution (the same as the basic rate of Income Tax).
The maximum the government will contribute is £2,000 a year per child, or £4,000 for disabled children.