You are right to worry that the cost of raising children continues to increase. The pandemic we've been confronting for over a year now has added exceptional physical, mental and financial pressure on families.
It is now more important than ever before to fully grasp the extent of financial help you are entitled to as a parent in the UK and tax free childcare is something that can save you up to £2,000 per year. It only takes minutes to set up and maintain as long as your family is eligible to receive it.
Setting up tax free childcare online is relatively easy (apply here) and I'm going to share my own mistake to avoid others from missing out from tax free childcare (like I did for a long time).
How much can you claim
If you're new to parenthood and keep hearing that the current childcare help is not up to the standard we'd all want and expect you're probably right. But if you're thinking it's so little that it's not even worth the hassle, think again. The easiest way to look at tax free childcare is to consider it as a 20% saving on your bill. That is, for every £8 you pay, the government contributes another £2. So if your monthly childcare invoice is £500, you only pay £400 out of pocket and the remaining £100 comes from the government contribution ie. you save £100.
You can receive contributions of up to £500 every three months, so a total of £2,000 per year. Children with disabilities get more, respectively up to £1,000 every three months or £4,000 a year.
Who is eligible for tax free childcare
I wrote a post a while back about claiming up to 30 hours of free childcare per week and similar criteria applies it it comes to tax free childcare.
- the parent(s) need(s) to be working and earning at least the equivalent of 16 hours at the national minimum wage for the next 3 months (this equates to each parent earning at least £1,853.28 in total for the next 3 months)
- exceptions to working can only be if the parents are either on sick or annual leave, shared paternal, maternity, paternity or adoption leave
- neither parent can earn more than £100,000 before tax per year
- self-employed parents can use yearly estimates if they don't expect to make a profit in the next 3 months and they are now affected by the earning limits if they started self-employment less than 12 months ago.
- the child has to be under 11 (their eligibility automatically ends on 1 September after their 11th birthday) and has to live with the parent(s) claiming tax free childcare.
- the parent(s) need(s) to have a National Insurance number and at least one of: British or Irish citizenship, settled or pre-settled status, permission to public funds (your UK residence card tells you this).
When to claim it
The golden question. While tax free childcare can start at any point (unlike the more rigid scheme of 15 or 30 hours), the rule of thumb is apply as early as possible, giving yourself plenty of time to have it all up and running before you're planning to use childcare. Once you set up an account and pay money in, the government will add their top-up contribution in maximum 24 hours and when that money is in, you'll be able to make a payment towards your child's nursery or childminder. You can also set up a direct debit if you don't want to do ad-hoc or manual monthly payments.
A personal anecdote - I paid my son's nursery invoice through ParentPay for over a year (it was the platform his nursery mentioned to us) before I realised the tax free childcare contribution didn't actually work like this and that we were missing out on quite a lot of money. I know... not my proudest financial story.
So don't do what I did and make sure you only pay through the government portal. Remember to check that your provider is signed up to the tax free childcare scheme in order to benefit from the savings.