Tax-free childcare and 30 hours free childcare

    Contents

  1. Overview of tax-free childcare and 30 hours free childcare
  2. Relaxation in eligibility conditions due to coronavirus

Overview of tax-free childcare and 30 hours free childcare

Tax-free childcare

To access this scheme, the parents or guardians need to open a National Savings and Investments childcare account online via the GOV.UK website. For each 80p paid into the account, the Government pays in 20p, up to the maximum of £2,000 per child per year (£4,000 if the child is disabled). This effectively provides 20% basic rate tax relief on the amount contributed, and is the reason why the scheme is often referred to as ‘tax-free’ childcare, although in fact it is not tax-free since higher rate taxpayers do not obtain full tax relief.
Childcare Payments Act 2014, ss 1(4), 19(4), (5)

The funds in the account must be spent on qualifying childcare, see the GOV.UK website.

If one of the parents or guardians expects to have adjusted net income of more than £100,000, they cannot qualify for tax-free childcare, although this threshold is temporarily increased to £150,000 in 2020/21 for critical workers whose income exceeds the normal threshold for reasons related to coronavirus. The adjusted net income calculation is the same as for personal allowance purposes.
Childcare Payments Act 2014, s 10; SI 2015/448, reg 15; SI 2020/656

The eligibility requirements in relation to parents / guardians and children are discussed on the revenuebenefits website (a website maintained by the Low Incomes Tax Reform Group).

30 hours free childcare

In addition to tax-free childcare, working parents may also qualify for up to 30 hours of free childcare per week for children aged between three and four years of age. For details of when and how to make the application and the date from which free childcare is available, see the GOV.UK website.
Childcare Act 2016, s 1; SI 2016/1257

Again, the childcare must be with an approved childcare provider, and 30 hours free childcare is not available if one of the parents or guardians expects to have adjusted net income of more than £100,000.
SI 2016/1257, reg 4A

The eligibility requirements in relation to parents / guardians and children are discussed on the GOV.UK website.

Relaxation in eligibility conditions due to coronavirus

As working parents (both must be in qualifying paid work) may no longer meet the normal minimum income requirement, which is the national minimum wage for 16 hours per week, due to coronavirus, relaxations to the eligibility conditions are necessary as otherwise these individuals would no longer qualify.
SI 2015/448, reg 8; SI 2016/1257, reg 5

Individuals with existing childcare accounts are advised to review their circumstances in light of the latest Government guidance and, if they still qualify under the relaxations, they should reconfirm their eligibility via their childcare account on the GOV.UK website.

Even if the family’s circumstances have not changed, ie the parents’ working hours and pay are as normal, the individual is best advised to reconfirm eligibility to ensure there are no problems with the continuity of childcare.

The guidance on the GOV.UK website identifies the following categories of individual who may continue to qualify under the relaxations:

  • furloughed employee
  • individual is not able to work or is working less
  • individual has been made redundant
  • self-employed
  • universal credit claimant
  • critical worker

See the detailed guidance on the eligibility relaxations on the GOV.UK website.