Over a million families are missing out on £2,000 a year in tax-free childcare
OVER a million families are missing out on £2,000 a year because they are not claiming tax-free childcare.
HMRC figures show that around 90 per cent of people who are eligible for the benefit haven't used it.
Over 1.1million families are losing out, partly because the system is "too complicated" and partly because people assume they are not eligible.
Royal London found that the average annual cost of childcare is £12,789. Getting the full government tax-free contribution could pay 16 per cent of this bill.
Becky O’Connor, personal finance specialist at Royal London, said: "The government needs to do more to boost awareness and understanding of the benefits of this scheme, which can save parents thousands of pounds.
"So far, the scheme has failed to reach the majority of those it was intended to help and working parents are missing out."
What is tax-free childcare?
Tax-free childcare was introduced in 2017 to help ease the burden of childcare costs on working families.
It essentially works like a savings account where for every £8 you save towards childcare costs, the government tops up an extra £2.
The maximum government top up each year is £2,000 per child, although if your children are disabled the maximum rises to £4,000.
You get the bonus regardless of when you save the money, and you can save as much as you can afford.
So if you put away £8,000 a year for one child, the government will give you £2,000 totally free.
If you can only afford to set aside £4,000 a year, HMRC will add £1,000.
You get the top-up instantly, so once you've put the money into the account, you can then use it to pay for any registered childcare provider.
Once you’ve set up the account, you have to sign back in every three months and confirm your details are up to date to keep getting the contributions from the government.
Nearly 60,000 registered childcare providers are signed up, including nurseries, nannies, childminders and school clubs.
You can even use the money to pay for regulated school holiday clubs.
To use the service just check with your childcare provider id they are signed up and ask them to if they haven't.
How tax-free childcare works if you are separated
YOU and your ex-partner cannot both have accounts for the same child.
The parent who applies for tax-free childcare, must also be the parent who gets the 30 hours funded childcare.
If one parent applies for Tax-Free Childcare and someone else already gets 30 hours free childcare for that child, their 30 hours will stop at the end of the next term.
You and your ex-partner need to decide who should apply if you are jointly responsible for your child.
If you cannot decide, both of you must apply separately and to work out which type of support is best for you.
- Working Tax Credit or Child Tax Credit will stop straight away if you get Tax-Free Childcare
- You must tell your employer to stop childcare vouchers or directly contracted childcare within 90 days of applying for Tax-Free Childcare
- Wait until you get a decision on your Tax-Free Childcare application before cancelling your Universal Credit claim.
You can get tax-free childcare at the same time as your free 30 funded hours childcare.
But the parent who applies for the funded hours must be the same parent who opens the tax-free childcare account.
How to apply for tax-free childcare
You can apply for tax-free childcare online - it only takes 20 minutes.
You need to open a government account, which can then be used to pay your provider.
You’ll need your details (and your partner’s, if you have one), including:
- National Insurance number
- Unique Taxpayer Reference (UTR), if you’re self-employed
You can pay your provider once the money is shown as ‘available funds’.
It can take up to three working days for the money to reach your provider’s account so you'll need to get organised before your payment is due.
When you apply you'll also find out if you're eligible for 30 hours of free childcare.
It can take up to seven days to get this information.
Becky O'Connor said: “If you pay for any kind of childcare, whether that is after-school club or holiday activities, it is absolutely worth registering for tax-free childcare.
“The exception to this is if you already receive childcare vouchers - the old scheme that tax-free childcare replaces.
“In many cases, parents are better off on the vouchers, particularly if they only pay for childcare on an ad hoc basis or for a few hours a week."
An HMRC spokesperson said: “We are continuing to promote Tax-Free Childcare to parents and working... to raise awareness and encourage more parents to apply.
“We’re also using our research to make improvements... making it easier for parents to access information about Tax-Free Childcare and to apply for the support.”
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