Help with childcare costs comes mainly through government schemes rather than through your tax return. The main one for working parents is Tax-Free Childcare, which adds £2 for every £8 you pay in, up to £500 every 3 months per child (£2,000 a year), or £1,000 a quarter (£4,000 a year) for a disabled child. You lose it if either parent expects adjusted net income above £100,000. In England, working parents of children aged 9 months to 4 years may also get 30 hours of free childcare a week for 38 weeks a year. This guide explains how the schemes work, how they interact and where the tax traps are.
How Tax-Free Childcare works
You open an online childcare account and pay money in by Direct Debit, standing order or bank transfer. The government's top-up is 25% of what you pay in, which is the same as 20% of the total bill. You then pay an approved provider from the account.
- Limit per child. The top-up is capped at £500 every 3 months, or £1,000 for a disabled child, so the most you can pay in for one child in a 3-month period is £2,000 (£4,000 if disabled);
- Age. Your child qualifies until the September after they turn 11, or after they turn 16 if disabled;
- Approved providers. Registered childminders, nannies, nurseries, clubs and playschemes, registered schools and some agencies. A grandparent's care only counts if they are a registered childminder caring for your child outside your home;
- Reconfirm every 3 months. If you do not sign in and confirm your details, the top-ups stop.
Worked example (our arithmetic). A nursery charges £900 a month for one child, or £2,700 a quarter. You pay £2,000 into the account and the government adds £500, so £2,500 of the bill is paid from the account. The remaining £200 you pay yourself, either directly or through the account without a top-up, so your total cost for the quarter is £2,200. Over a year the top-up is worth £2,000, which an employee paying 40% income tax and 2% National Insurance would need roughly £3,450 of gross salary to fund out of taxed pay.
Who qualifies: work and income tests
You, and your partner if you have one, must usually be in work, whether employed or self-employed. Statutory leave, sick leave and annual leave are covered. Each of you must expect to earn at least the National Minimum Wage or National Living Wage for 16 hours a week, averaged over the next 3 months. For 2026/27 that is:
| Age | Hourly rate | Minimum over 3 months |
|---|---|---|
| 21 or over | £12.71 | £2,643.68 |
| 18 to 20 | £10.85 | £2,256.80 |
| Under 18 or apprentice | £8.00 | £1,664 |
Dividends, interest, property income and pension income do not count towards the minimum. This matters for company directors who pay themselves a small salary and take the rest as dividends: the salary alone has to clear the threshold, or you need to average your expected earnings over the tax year if you are not paid regularly. If you are self-employed and started your business less than 12 months ago, the minimum earnings test does not apply.
A partner who is not working may still let you qualify if they are entitled to certain benefits, such as Carer's Allowance or contribution-based Employment and Support Allowance.
The £100,000 cliff edge
You cannot claim if you or your partner expect adjusted net income above £100,000 for the current tax year. The test is on each parent separately, not combined, so a household on £90,000 + £90,000 qualifies while one on £101,000 + £0 does not. The £100,000 limit is also used for Free Childcare for Working Parents, so crossing it can cost both schemes at once.
Because adjusted net income is reduced by pension contributions and Gift Aid, a parent just over the line can often bring themselves back under it with an extra pension contribution. Our guides to the £100k tax trap and adjusted income explain the calculation. Note that the test looks at expected income when you reconfirm, so a bonus that pushes you over during the year needs watching.
30 hours free childcare and other help
- Free Childcare for Working Parents (England). 30 hours a week for 38 weeks a year for children aged 9 months to 4 years, if you meet similar work and income conditions. You can apply from when your child is 23 weeks old, and you receive an 11-digit code to give your provider;
- Universal free hours for 3 and 4-year-olds (England). 570 hours a year, usually taken as 15 hours a week for 38 weeks, regardless of income;
- Universal Credit childcare. Up to 85% of childcare costs, capped at £1,071.09 per monthly assessment period for one child and £1,836.16 for two or more.
Free hours and Tax-Free Childcare can be used together: the free hours cover the funded time and you can pay for extra hours through the childcare account. Scotland, Wales and Northern Ireland run different free-hours schemes.
Universal Credit and childcare vouchers
You cannot get Tax-Free Childcare at the same time as Universal Credit or childcare vouchers. Which is better depends on income and costs, and the government's childcare calculator compares them. If you switch from Universal Credit, wait until your Tax-Free Childcare application is approved before cancelling the claim.
Employer childcare voucher schemes closed to new applicants: only employees who joined and had their wages adjusted on or before 4 October 2018 can still use them. For those who joined from 6 April 2011, the tax-free limit depends on their tax band: £55 a week for basic rate, £28 for higher rate and £25 for additional rate. Higher earners therefore often gain more from Tax-Free Childcare. If you move to Tax-Free Childcare, you must tell your employer within 90 days to stop the vouchers.
Childcare and employers: what is taxable
A workplace nursery that meets the registration and availability conditions is exempt from tax and National Insurance. By contrast, if an employer simply reimburses childcare bills or pays a childcare allowance, the payment is ordinary earnings and goes through payroll with PAYE and Class 1 National Insurance. Vouchers or commercially contracted childcare above the exempt limit must be reported on form P11D.
Sources: GOV.UK: Tax-Free Childcare; GOV.UK: Free Childcare for Working Parents; GOV.UK: Universal Credit childcare costs; GOV.UK: Expenses and benefits: childcare; Childcare Payments Act 2014, s.1 and s.19; Childcare Payments (Eligibility) Regulations 2015, reg. 15.
If your income sits near £100,000 or you are deciding between salary, dividends and pension contributions, our tax planning team can model the effect on your childcare support. Employers reviewing childcare benefits can speak to our employment tax specialists.