Support your employees with Tax-Free Childcare. Learn eligibility, how it works, and your responsibilities as an employer.
What Is Tax-Free Childcare?
The government’s Tax-Free Childcare scheme helps parents remain in work by covering up to £500 every three months per child (or £1,000 if the child has a disability). Parents receive these funds via an online account where every £8 they contribute is topped up with £2 by the government.
What Can It Be Used For?
Funds in the childcare account can pay for approved childcare services such as:
Nurseries
Childminders
Nannies
Play schemes
After-school clubs
However, the provider must be registered for the scheme.
Who Qualifies?
To qualify, parents must:
Work at least 16 hours a week
Earn above the National Minimum or Living Wage
Earn under £100,000 annually
Eligibility includes those on leave (maternity, parental, sick, or annual). Children are eligible up to the September after their 11th birthday, or 16th birthday if they have a disability.
Note: Tax-Free Childcare can’t be claimed with Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers, but it can be used alongside 15 or 30 free hours of childcare (if eligible).
Use the online childcare calculator to find the best option.
What About Childcare Vouchers?
The scheme closed to new applicants in October 2018. However, employees already in a voucher programme can still receive income tax and National Insurance Contributions (NICs) relief—provided they remain eligible.
Voucher users must:
Remain with the same employer
Receive vouchers consistently for 12+ months
Stay compliant during breaks, like, unpaid leave
Employees switching employers under a TUPE transfer may also retain voucher eligibility.
Switching to Tax-Free Childcare
Once an employee switches to Tax-Free Childcare, their vouchers and reliefs must stop. Changes to a salary sacrifice arrangement require payroll and contract updates.
Employees must notify their employer in writing within 90 days of receiving Tax-Free Childcare. After that, they cannot rejoin the voucher scheme.
Unused vouchers can still be spent, with no expiration.
Employer Contributions
As an employer, you can contribute to a childcare account via bank transfer or standing order. Make sure you deduct tax and NICs first.
You’ll need:
A standard sort code and account number
The employee’s 13-digit childcare account reference
Profectus Can Help You Support Your Team
At Profectus Accounting, we help small businesses implement tax-smart benefits that support team wellbeing and retention. If you'd like help navigating employer childcare schemes or setting up salary sacrifice arrangements, we’re here to help.
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