Tax-free childcare of up to £2,000 a year is available for working parents, but claiming the benefit is not straightforward, experts have warned. The scheme provides an extra £2 for every £8 parents spend on childcare, effectively offering a 25% top-up.
How the Scheme Works
Families can claim up to £2,000 per child per year, or up to £4,000 for a disabled child. Eligibility continues until 1 September after the child's 11th birthday, or after their 16th birthday if disabled. However, parents must sign into their childcare account every three months to confirm details, according to the Labour government.
Low Uptake Concerns
Currently, only about 580,000 families are using the scheme out of roughly 800,000 eligible, meaning 220,000 are missing out. Financial expert Martin Lewis criticised the scheme's name, calling it "appallingly misleading." He suggested a better name would be "Working Family Childcare Top-up" as it is a discounted savings scheme with a 25% top-up, not related to tax rates.
Universal Credit Considerations
Anna Stevenson, senior benefits specialist at Turn2us, highlighted that parents on universal credit cannot receive both tax-free childcare and universal credit childcare support simultaneously. Many may be better off with the universal credit element, which can cover up to 85% of eligible costs, but the choice is not always straightforward.
An HMRC spokesperson said: "Research shows that almost 90% of customers have a good experience of the childcare service. As part of our efforts to improve customer service, we are undertaking work over the coming years to modernise the service."
