Paying for childcare
Paying for your child's care can account for a large chunk of your family income. However, there are ways you can get some extra help if the care you use is provided by a registered person or setting.
Registered or approved means:
- a childminder registered with Ofsted in England or CIW in Wales
- an 8s and over childminder registered on the voluntary part of the Ofsted Childcare Register in England
- a nanny registered on the voluntary part of the Ofsted Childcare Register or the Childcare Approval Scheme in Wales
- a nursery or pre-school registered by Ofsted in England or CIW in Wales.
Accessing financial help
Find out what help you might be entitled to with gov.uk's Childcare Calculator.
Tax-free childcare (TFC) is a government initiative designed to help working families afford childcare. The scheme offers eligible families 20% support towards the cost of their childcare - the equivalent to basic rate tax relief - up to an annual limit of £2000 per child, or £4000 if the child is disabled. The scheme is available for children up to the age of 12, or 17 if they are disabled.
Operated through an online account, eligible parents pay money towards qualifying childcare costs. The government will automatically make "top-up" payments of 20p for every 80p that families pay in. For example, over the course of a year, if an eligible family pays £8000 into their TFC online account, the government will top this up to £10,000 to use to pay for registered childcare.
Parents will then be able to make payments for childcare costs directly to their nominated childcare provider(s) through this account.
Tax-free childcare is expected to replace the use of childcare vouchers, and makes it easier for more families to access financial support. Tax-free childcare will be available to more families, including those who are self-employed.
Tax-free childcare works hand in hand with the doubling of the free childcare entitlement from 15 hours to 30 hours a week for working families with 3- and 4-year-olds. The eligibility requirements for TFC and the 30-hour entitlement in England are the same, and parents will use the same online system to register for both.
Find out more about tax-free childcare with this useful document for parents.
If you have a new baby, or you're responsible for any children under 16, you could claim Child Tax Credit. You can also qualify if you have children aged 16 to 19, as long as they're in certain types of education or training. It is worth calling HM Revenue and Customs on 0845 300 3900 or visiting www.hmrc.gov.uk to find out if you can get help.
If you are eligible, you might be able to qualify for the childcare element of Working Tax Credit. You need to be using registered or approved childcare, but if you are - the childcare element can help with up to 70% of your eligible childcare costs per week, up to a set limit. The actual amount you get will depend on your income. The lower your income, the more tax credits you can get.
Only childcare provided by registered or approved childcarers is eligible for the tax credit. You cannot claim the childcare element of Working Tax Credit if the childcare you are using is provided by a relative of the child, even if that relative is registered or approved. A relative of the child means a parent, grandparent, aunt, uncle, brother or sister whether by blood, half-blood, marriage or affinity.
The exception to this is when your child is cared for by a relative who is either:
- a registered childminder who cares for your child outside of your child's own home
- a childcare provider, approved under a Home Child Care Providers Scheme in Wales who cares for your child outside of your child's own home, but they must also care for at least one other child who's not related to them.
Visit HMRC for more information about tax credits, and to apply online.
Many employers offer their staff childcare vouchers via "salary sacrifice". Neither you nor the employer will pay tax or National Insurance contributions on the first proportion, so you could save a significant amount each year, making it a very cost effective way to pay for childcare.
Vouchers are available as long as the childcare you use is registered or approved. Childcare vouchers can be used to pay for the care of children up to the age of 15 (until 1st September following their 15th birthday) or 16 if they are disabled (until 1st September following their 16th birthday).
There are childcare voucher companies who will administer the scheme on behalf of your employer, and will ensure that the payments are made correctly to your childcarer.
HM Revenue and Customs has an online calculator which help you calculate whether you would be better off using childcare vouchers. Read more detail about childcare vouchers.
England - funded education places
All 3- and 4-year-olds in England and some 2-year-olds (see below) are entitled to 15 "free" hours of early education sessions. Eligible 3- and 4-year-olds are also able to claim a further 15 hours, making a total of 30 hours. This is usually taken over 38 weeks of the year, but may be "stretched" across the full year. The offer applies until children reach compulsory school age (the term following their 5th birthday). This is known as the free entitlement.
Funded places can be offered by:
- registered childminders
- children’s centres
- day nurseries
- nursery classes in schools and academies
- nurseries on school sites
- some playgroups and pre-schools
Once their child is 3, families can claim a place from 1 September, 1 January or 1 April. For example, if a child was born in February, they can claim their funded place from the 1 April after they turn 3.
30 hours funding
30 hours is only available for eligible 3- and 4-year-olds. If you are an eligible parent, you can apply for 30 hours and Tax Free Childcare through the government's online Childcare Service. Parents must make their application the term before they wish to start receiving the entitlement.
Read our spotlight on 30 hours and download parent FAQs for more information and support.
England- 2-year-old offer
Who is eligible?
Your 2-year-old will be eligible for a funded place if you claim any one of the following:
- Income Support
- Income-based Jobseekers Allowance
- Income-related Employment and Support Allowance
- Support under Part VI of the Immigration and Asylum Act 1999
- The guaranteed element of State Pension Credit
- Child Tax Credits or Working Tax Creditsand have an annual gross household income of no more than £16,190
- Working Tax credit Run-on – paid for 4 weeks after the claimant stops qualifying for Working Tax Credit.
A child is also eligible if they:
- are looked after by the local authority
- have a current statement of special educational needs (SEN) or an education, health and care plan (EHCP)
- receive a Disability Living Allowance
- have left care through special guardianship or an adoption or child arrangements order (formerly residence and contact orders).
The criteria relating to Universal Credit will be confirmed by government at a later date. In the meantime, if you are currently receiving Universal Credit please contact your local authority for more information.
How much does it cost?
Early learning for 2-year-old places are free for parents. They are funded by the Government.
If you choose to, you can purchase extra hours in addition to the 570 hours per year (subject to availability at the setting where your child takes up their early learning place.) You should not be asked to pay additional fees, for example for services such as activities or lunchtime meals as a condition of taking up the early learning place.
If you are already receiving child tax credits you should inform HMRC when taking up a funded early education place as it may change the amount you pay for childcare. Find out how to access a funded education place in your local authority at the following website address: www.gov.uk/find-free-early-education
General information about the early learning programme can be found at the following website address: www.gov.uk/freechildcare
Contact your local early years team to find providers in your area or visit. You can also ask your local nursery, playgroup, childminder, children’s centre or primary school whether they offer funded places for 2-year-olds.
Universal Credit (UC) is a single payment for people who are looking for work or receive a low income. UC operates using an online system and instead of varied payments for different benefits, claimants will receive one monthly payment. The move to a single, monthly payment is to reflect the world of work, where 75% of all employees receive wages monthly. This aims to smooth claimants’ transition into monthly paid work, encouraging people to take personal responsibility for their finances and to budget on a monthly basis.
UC effectively replaces the childcare element of the Working Tax Credit currently available to low-income families who work at least 16 hours a week. UC provides childcare support even if a parent works just one hour per week. For many low- to middle- income families with young children, a crucial issue is whether it pays to work after covering childcare costs. UC reforms help parents working fewer than 16 hours a week to pay for childcare.
UC is also good news for parents and carers who work irregular or unpredictable work patterns. Support for childcare costs made through the Working Tax Credit didn't work well for those with fluctuating incomes. UC goes some way to addressing this issue as it enables greater flexibility for parents and carers whose costs fluctuate during the month. For example, under UC help with childcare costs will continue for one month after a period of employment ends, meaning parents and carers won’t have to recalculate every time their circumstances change. This should mean that more people make use of formal childcare – good news for parents and for PACEY members.
This video* explains more about Universal Credit. There's even more information at GOV.UK.
*Video by the Department of Work and Pensions. Contains public sector information licensed under the Open Government Licence v2.0.