Tax-free childcare

09 September 2016

With the introduction of Tax- Free Childcare in early 2017, a reminder that the existing scheme, Employer-Supported Childcare will remain open to new entrants until April 2018 to support the transition between the schemes.

Geographical extent – the new Tax-Free Childcare scheme applies to all four nations of the UK.

Childcare providers are being urged to register as soon as they receive a sign-up letter from the government. Letters are being sent out to providers during September and October 2016. The registration process can take up to 12 weeks and if a provider hasn’t registered, parents will not be able to use Tax-Free Childcare to pay them.

Tax-Free Childcare will be available to around two million working households to help with their childcare costs. From early 2017, working parents with children under 12 (under 17 for disabled children) can set up an online childcare account to pay their childcare providers directly. For every £8 parents pay in, the Government will add £2, up to a maximum contribution of £2,000 per child, per year (£4,000 per year for disabled children).

To qualify, parents must be in work and each earning at least £115 a week and not more than £100,000 per year.

The government’s new childcare options will include:

  • More generous support for parents on Universal Credit who, since April 2016, can claim up to 85% of childcare costs, up to a monthly limit of £646 for one child or £1,108 for two or more children.
  • From 2017, the Government will introduce Tax-Free Childcare and an additional *15 hours of free childcare for working parents of three and four year olds. Parents will be able to apply for both schemes through a single online application.

*15 hours of free childcare applies to England only. Free education and childcare is also available for children in Scotland, Wales and Northern Ireland.

The current Employer-Supported Childcare voucher scheme, which parents can only use if their employer participates, will remain open to new entrants until April 2018 to ease the transition.

The importance of childcare providers

As previously published childcare providers have a pivotal role in Tax-Free Childcare. Many parents will want to pay for their childcare through this scheme, and to receive these payments, childcare providers must have signed up in advance. If they don’t sign up, parents won’t be able to use Tax-Free Childcare to pay them.

Childcare providers who have signed up will appear on the new online service which lets parents identify childcare providers who are able to receive payments via Tax-Free Childcare, before the scheme launches.

HMRC has already begun contacting all childcare providers to introduce Tax-Free Childcare. Throughout September and October, they will then write to all childcare providers registered with a regulator, inviting them to sign-up to the scheme.

HMRC want to ensure that childcare providers have a practical understanding of what Tax-Free Childcare will mean for them before it launches for parents in early 2017.

Top five things childcare providers need to know

When can I sign-up for Tax-Free Childcare?

In September and October 2016, the Government will send letters to registered childcare providers across the UK. These letters will invite you to sign-up online for Tax-Free Childcare. You’ll be able to sign-up as soon as you receive your invitation. Once you sign-up, you’ll appear on our new digital tool, which lets parents search for childcare providers signed up for Tax-Free Childcare. This tool will be available from early 2017.

What information do I need to sign-up?

Your letter will include a user ID which you will need to start the online sign-up process. If you’re running a business you will also need your 10-digit Unique Tax Reference (UTR) number to sign-up for Tax-Free Childcare. This is the number that HMRC gave you when you first told HMRC that you were working for yourself. You can find your UTR on any HMRC communications, for example, your tax return or your payment reminder. If you can’t find your UTR number, HMRC can send this number to your address. For more information call 0300 200 3410.

If you’re a nanny you will also need your National Insurance number to sign-up and you will need to tell HMRC your bank details.

How do parents pay for Tax-Free Childcare?

Parents will be able to send payments directly from their Tax-Free Childcare account to your bank account. Each child will have a Tax-Free Childcare reference number. Parents can share their reference numbers to help you identify payments.

When can parents start using Tax-Free Childcare?

Tax-Free Childcare will be rolled out gradually from early 2017, parents with the youngest children able to apply first. Parents will be able to apply for all their children at the same time when their youngest child becomes eligible. All eligible parents will be able to join Tax-Free Childcare by the end of 2017.

What happens if the details that my regulator have are not up to date?

We will be sending your invitation to the postal address held by your regulator so you may not receive it if your details are out of date. Please ensure your regulator has your correct details, including your current email address.

For more information on this new offer, and HM Government’s existing childcare schemes, visit GOV.UK.