Martin Lewis has issued a warning to parents not to take a government scheme at face value. The Tax-Free Childcare scheme allows working parents to receive up to £2,000 annually for each child they have, which can be used towards childcare costs such as childminders and nurseries.
Despite an estimated 1.3 million families being eligible for the scheme, only 800,000 are currently taking advantage of it. One significant issue with the scheme is its misleading name.
In a post on his MSE website, Martin stated: “Calling the scheme Tax-Free Childcare was a political spin to ensure government gets credit for the scheme. Unfortunately the name is appallingly misleading, and probably partly responsible for the scheme having a much lower take up than it should. It’s not about tax in anyway, and isn’t linked to the tax rate you pay.”
“A better name would be ‘Working Families Childcare Top-up’, because it’s effectively a discounted childcare savings scheme where you save and then pay for childcare with a 25% top-up.”
How tax-free childcare works
The scheme essentially allows every 80p a parent puts into their Tax-Free Childcare to be topped up by the government with 20p. In practice, this means parents can receive an extra £2,000 (or £4,000 if a child is disabled) to help pay for up to £10,000 in childcare.
However, it’s important to note that there is a quarterly cap of £500 to the top-up, therefore, the payments are limited to every three months.
Who is eligible for tax-free childcare
Work status
Single parents are eligible for the scheme regardless of whether they are employed or self-employed. Couple are only eligible if both are working.
Furthermore, you ( and your partner where applicable) must also:
- Earn the national minimum wage or 16 hours a week equivalent for your age group.
- Earn less than £100,000 (for couple this is £100,000 each)
For the self-employed, you (and your partner where applicable) must each expect to earn the following in three months, depending on your age:
- Under 18 or an apprentice – £1,331
- 18 to 20 – £1,788
- 21 or over – £2,379
Child eligibility
A child must be aged 11 or younger to qualify. However, if the child is disabled they can be up to the age of 16.
How to apply for tax-free childcare
You can apply for the scheme online which will create a childcare account for you through gov.uk. You will also need the following information on hand:
- National Insurance number
- Unique Taxpayer Reference (UTR), if you’re self-employed
- the UK birth certificate reference number (if you have one) of any children you’re applying for
- the date you started or are due to start work (this can be approximate if more than 3 months ago)
