What is it?
Tax-Free Childcare (TFC) is a new Government scheme which will give eligible families up to £2,000 per child towards childcare costs, including the fees for breakfast, after-school and holiday clubs. The aim is for it to replace the employer-supported Childcare Voucher scheme.
It was initially only open to Early Years children, and then gradually rolled out to older children, so that by the end of February 2018 all children up to the age of 12 (or up to 17 for children with disabilities) were included. Childcare Voucher schemes closed to new entrants from the end of from 4 October although parents who have already signed up can continue to use them.
Who is eligible?
The scheme is open to employed and self-employed parents, so long as both parents are working, and the possible saving is £2,000 per child. There is also a minimum income requirement and maximum income cut-off (currently £100,000). This differs from the Childcare Voucher scheme which only applies to employed parents, however only one parent needs to be in employment and there is no cut-off for high earners. Whether parents are better offer staying with the Childcare Voucher scheme, or signing up to the Tax-Free Childcare scheme therefore depends on whether both parents are employed (or self-employed), how many children they have, and how much they earn.
You should direct interested parents to one of the various online resources to see which scheme would be most cost-effective for them.
See Money Saving Expert explanation of pros and cons
How does it work for parents?
The idea is that eligible parents will set up an online Childcare Account via the .GOV.UK website. For every £8.00 that a parent deposits in the account, the Government will immediately top this up by a further £2.00, up to a maximum of £2,000 over the course of the year. Parents can then use the funds in their Childcare Account to pay for childcare at settings that are registered for Tax-Free Childcare. Only settings that are registered with a UK regulatory body (ie Ofsted if you are based in England) can register with the Tax-Free Childcare scheme.
Note that parents can't use the Tax-Free Childcare scheme if they are also in receipt of other support towards childcare costs, such as employer-supported Childcare Vouchers, or the childcare element of Tax Credits or Universal Credit.
How does it work for providers?
Once parents have set up their Childcare Account and deposited funds into it, they can make payments to registered childcare providers, just as they would through an online bank account, using a reference number for each child so you can identify their payments.
Providers much register for Tax-Free Childcare before parents can use the scheme to pay for childcare at their setting. Most Ofsted-registered providers will have been contacted by HMRC inviting them to sign-up. If you have not been invited to sign up, or have lost your sign up letter, contact the childcare service helpline on 0300 123 4097.
Sign up for Tax-Free Childcare
There is no need for providers to change how they bill parents - it's just that parents who are registered for the Tax-Free Childcare scheme can now use this method to pay (some or all of) their childcare fees. Providers can continue to accept payments via a range of sources, including Tax-Free Childcare, and the existing Childcare Voucher scheme; it's only individual families that must choose one scheme or the other.