More than 300,000 working families across the UK are failing to claim a valuable HMRC benefit that could provide up to £2,000 per child each year, according to Money Saving Expert (MSE). The site, founded by Martin Lewis, is urging parents to take advantage of the Tax-Free Childcare scheme, which it describes as a 'no-brainer' top-up for childcare costs.
What is Tax-Free Childcare?
Despite its name, the scheme is not directly related to tax. Instead, it offers a government top-up to help working families pay for childcare. For every 80 pence a parent pays into a dedicated online account, the government adds 20 pence, up to a maximum of £2,000 per child per year (or £4,000 for disabled children). This effectively provides a 20% bonus on eligible childcare spending, up to a total of £10,000 per child annually.
The scheme is available to families where both parents (or a single parent) are in work and earning at least the National Minimum Wage for 16 hours per week on average, with each earning under £100,000 per year. It can be used for registered childcare providers, including nurseries, childminders, and after-school clubs.
Why Are So Many Missing Out?
MSE has long campaigned for the scheme to be renamed the 'Working Family Childcare Top-up', arguing that its official title is misleading. In a recent email, the site stated: '300,000 homes miss out on up to £2,000/yr via the 'Working Family Childcare Top-up' scheme. You won't have heard of this, because we made the name up. It's what we campaign for the formally titled 'Tax-Free Childcare' scheme to be called, as its real name is misleading and confusing: it has little to do with tax, and isn't tax-free.'
The worry is that the confusing name is one of the reasons 300,000 eligible families still don't claim it. So if you're not on Universal Credit, this is worth a look.
How to Claim
To access the scheme, parents must open an online Tax-Free Childcare account via the Government Gateway website. They then pay money into the account, and the government adds the top-up. However, there is a quarterly cap of £500 on the top-up, meaning parents cannot receive more than £500 every three months. This could impact those with higher childcare bills, but MSE advises that those with seasonal costs should put money into their account throughout the year, accruing the full top-up as they go, and spend it only when needed.
Many families find their nursery fees are higher at certain times of year, so regular contributions can help avoid hitting the quarterly limit.
Eligibility and Impact
The scheme is separate from Universal Credit childcare support and can be used alongside 30 hours free childcare for three- and four-year-olds. According to HMRC, over 1.3 million families have used the scheme since its launch in 2017, but the 300,000 figure represents those who are eligible but not claiming. For a family with two children, the maximum annual benefit could be £4,000, a significant sum that could ease the burden of rising childcare costs.
Martin Lewis has repeatedly called for better promotion of the scheme, urging the government to simplify its name to increase uptake. In the meantime, parents are encouraged to check their eligibility and apply online.
