Pay £80 and get £100: How Tax-Free Childcare works

Last updated August 2026

Tax-Free Childcare is a government scheme that reduces the cost of approved childcare for eligible working families. For every £8 you put into an online childcare account, the government adds £2, meaning you pay £80 towards a £100 childcare bill. It can be used throughout the year or only when you need it, including for registered holiday clubs during the school holidays.

The scheme can provide up to £2,000 of government support per child each year, rising to £4,000 for an eligible disabled child. HMRC’s latest Tax-Free Childcare statistics show 601,000 families used the scheme for 744,000 children in March, with an average government top-up of £92 per family that month. HMRC has also reported a rise of more than 20% in families using it for children aged 8 and above, which shows the scheme is relevant beyond nursery age.

I’ve used Tax-Free Childcare to pay a childminder and after-school club, but we also made an expensive mistake. For a period, we paid those providers directly from our bank account rather than through the childcare account, which meant we missed out on hundreds of pounds in government top-ups. I also only recently found out that Tax-Free Childcare cannot be claimed at the same time as Universal Credit, a rule that needs to be much clearer because choosing the wrong scheme could cost a family far more than the top-up saves.

How does Tax-Free Childcare turn £80 into £100?

Tax-Free Childcare covers 20% of an eligible childcare bill, up to the scheme’s limits. You pay 80% into the online account, then the government adds the remaining 20% before you pay your provider. The top-up equals 25% of your own deposit, which is why paying in £80 produces £100 to spend.

Childcare bill	You pay into the account	Government adds
£100	£80	£20
£250	£200	£50
£400	£320	£80
£500	£400	£100
£625	£500	£125

The maximum standard top-up is £500 every 3 months for each child, adding up to £2,000 a year. For an eligible disabled child, the limit is £1,000 every 3 months and £4,000 a year. The limits apply separately to each eligible child, so a family with 2 children can have a separate childcare account and top-up allowance for each one.

The name can make the scheme sound as though it changes your tax code or reduces income tax, but that isn’t how it works. The support appears as money added to a childcare account, and that account is then used to pay an approved provider. A £100 bill still costs £100, but £20 comes from the government rather than your household budget.

Who can claim Tax-Free Childcare?

You can usually claim Tax-Free Childcare when you and your partner, if you have one, are working and each meet the scheme’s earnings rules. Your child must normally live with you and remain within the age limit, while neither adult can have expected adjusted net income above £100,000 for the current tax year. The £100,000 limit applies to each person separately rather than to the household’s combined income.

Your child remains eligible until the 1st of September after their 11th birthday. An eligible disabled child can remain covered until the 1st of September after their 16th birthday and may qualify for the higher annual top-up. You cannot claim Tax-Free Childcare for a foster child, although foster carers in England may be able to use Free Childcare for Working Parents where the separate conditions are met.

You and your partner will generally each need to expect earnings equal to at least 16 hours a week at the applicable National Minimum Wage or National Living Wage. When checked on the 4th of August, the minimum expected earnings over the next 3 months were:

Your age or status	Minimum expected earnings over 3 months
Aged 21 or over	£2,643.68 before tax
Aged 18 to 20	£2,256.80 before tax
Under 18 or an apprentice	£1,664 before tax

The rules allow for several circumstances where work or income doesn’t fit a standard monthly pattern. You can usually remain eligible while on annual leave, sick leave, maternity leave, paternity leave, shared parental leave or adoption leave.

A newly self-employed person in the first 12 months of their business can qualify without meeting the normal minimum earnings threshold, while some people with irregular or self-employed income can use an annual average.

If one partner isn’t working, the household may still qualify in some cases, including where that person receives Carer’s Allowance, contribution-based Employment and Support Allowance or certain other qualifying support. Immigration status also forms part of the eligibility test, and both partners normally need National Insurance numbers.

The official eligibility checker is the safest way to test a less common set of circumstances rather than assuming the answer from one rule alone.

Can you claim Tax-Free Childcare while on Universal Credit?

No, Tax-Free Childcare cannot be claimed at the same time as Universal Credit. It also cannot be used alongside childcare vouchers, although funded childcare hours can be combined with it. This was a rule I only found out about recently, and it is one of the most important points to check before opening or continuing to use an account.

Universal Credit has its own childcare support for eligible working claimants and can repay up to 85% of approved childcare costs. The current monthly maximum is £1,071.09 for 1 child and £1,836.16 for 2 or more children. The amount you actually receive depends on your Universal Credit entitlement, reported costs and individual circumstances.

Tax-Free Childcare	Universal Credit childcare support
Government covers 20% of the eligible bill	Can cover up to 85% of eligible costs
Up to £2,000 a year per child, or £4,000 for an eligible disabled child	Subject to monthly household limits
Money is added before you pay the provider	Costs are usually reported through your Universal Credit account
Available only when neither you nor your partner claims Universal Credit	Available only as part of an eligible Universal Credit claim
Cannot be combined with Universal Credit	Cannot be combined with Tax-Free Childcare

Universal Credit childcare support can be worth much more than the 20% Tax-Free Childcare contribution, but that doesn’t make one option automatically right for every household. Universal Credit is means-tested and affected by wider household income and circumstances, while Tax-Free Childcare has its own earnings and income limits.

Use the official childcare calculator before switching, and don’t close a Universal Credit claim simply to test another scheme without checking the wider effect on your finances.

What childcare can Tax-Free Childcare pay for?

Tax-Free Childcare can pay for approved childcare provided by a registered nursery, childminder, nanny, playscheme, school or club. It can cover breakfast clubs, after-school clubs and holiday childcare, which means it remains useful after a child starts school. The provider must be signed up to receive Tax-Free Childcare payments before money can be sent from your account.

The scheme cannot pay for compulsory education, school uniform or private lessons taking place during the school day. Tax-Free Childcare guidance explains that some extras, such as meals or trips, may qualify when they form part of the provider’s overall childcare charge. Ask the provider how it has registered the service and which costs can be paid through the account before assuming every item on an invoice qualifies.

Care provided by a relative has tighter rules. In England or Scotland, a relative such as a grandparent must be a registered childminder and care for the child outside the child’s home for Tax-Free Childcare to apply. You cannot use the scheme to pay your partner for childcare.

Can Tax-Free Childcare pay for school holiday clubs?

Yes, Tax-Free Childcare can be used for an approved holiday club, even when you only need the scheme during school breaks. There is no requirement to use the account every month or throughout the year. The provider must be approved and signed up to receive payments through the system.

This makes the scheme relevant to parents of primary-school children who may manage without paid childcare during term time but need cover in the summer, at Easter or during half term. HMRC says almost 75,000 childcare providers are signed up to receive these payments, while the number of families using the scheme for children aged 8 and above rose by more than 20% compared with the previous year. Those figures support the point that Tax-Free Childcare isn’t limited to nurseries and preschool children.

Check before booking because being a holiday club doesn’t automatically mean it accepts Tax-Free Childcare. Some schools and activity providers use separate payment platforms, and the service must be registered in a way that allows the childcare account payment to reach it. Ask for the provider’s registered name if it doesn’t appear when you search inside the account.

Families trying to limit the amount of paid childcare they need can also look at free and cheap school-holiday activities available locally.

How do you apply for Tax-Free Childcare?

You apply through GOV.UK and create a childcare account for each eligible child. The application checks the child’s details, your work and income, your partner’s position where relevant and your right to access the scheme. You may need your National Insurance number, your partner’s National Insurance number and the child’s UK birth certificate reference.

Once the account is open, search for the provider using its name, postcode or registered details. The provider must have joined Tax-Free Childcare before it can receive the money. If it hasn’t joined, ask whether it plans to register before paying a deposit or booking fees that you expect the scheme to cover.

You can add money by bank transfer, standing order or Direct Debit. GOV.UK says a payment will usually appear within 1 working day, with the government contribution added at the same time. You then select the provider inside the account and send the childcare payment from the topped-up balance.

How did we lose money by paying the provider directly?

We lost hundreds of pounds in potential support because childcare was sometimes paid from our ordinary bank account instead of the Tax-Free Childcare account. Our childcare providers still received the money, but we missed out on that extra government top up. Paying £400 directly meant spending the whole £400 ourselves, while paying a £400 bill through the scheme would only have required a £320 deposit because the government would have added £80.

This happened because a payment was due, the childcare account hadn’t been loaded and paying the provider directly felt like the quickest way to avoid being late, as we left oit last minute! Not being overly organised, we did this more than once, and that meant those missed top-ups meant we wasted money, we really could have used elsewhere, and would have made a diffrence to our household budget, as £80 is a food shop, or covers another bill, and thats such a waste of money.

The scheme will only work properly for you if you remember to move the money from your bank into the childcare account and then send the payment on to the registered provider. We solved this by setting a calendar reminder on our phones a few days before each bill was due, labelled “Put childcare money into the childcare account”. That helped us avoid missing the top-up or paying more than necessary simply because we hadn’t been organised.

Preloading the account monthly or fortnightly can also help, depending on when you’re paid. It’s especially useful for ad hoc holiday-club costs or invoices that arrive during busy weeks. Once the money is already in the account, you’re less likely to pay the provider directly and lose the government contribution.

What happens if you forget to reconfirm Tax-Free Childcare?

You must sign in to your childcare account and reconfirm your details every 3 months to keep receiving government top-ups. This is done by signing into the childcare account and confirming that your work, income and household details remain correct. If you don’t reconfirm, Tax-Free Childcare will stop until the position is resolved.

HMRC normally sends a reminder by text or email, but it is still worth adding your own calendar alert. A reminder is useful when the account is used only during school holidays because months may pass without logging in. Check the reconfirmation date before relying on the account for a large holiday-club payment.

Reconfirming is also the point at which a change such as moving onto Universal Credit needs attention. Tax-Free Childcare and Universal Credit cannot continue together, even when the Universal Credit claim doesn’t include childcare costs. Update the relevant service promptly and ask HMRC or Universal Credit for guidance where the timing overlaps.

Can you use Tax-Free Childcare with funded childcare hours?

Yes, eligible families can use Tax-Free Childcare alongside government-funded childcare hours. The funded hours cover eligible sessions, while the childcare account can be used for approved costs outside those hours. This may include extra nursery sessions, wraparound care or holiday childcare provided through an approved service.

The 2 schemes are separate, so qualifying for one doesn’t remove the need to meet the conditions for the other. Families using Free Childcare for Working Parents also need to reconfirm their details every 3 months. Check the provider’s invoice so you understand which hours are funded and which charges need to be paid.

Tax-Free Childcare cannot be combined with Universal Credit or existing childcare vouchers, even though it can sit alongside funded hours. Childcare vouchers are closed to new applicants, and an existing voucher user who moves to Tax-Free Childcare normally has to leave the voucher scheme. Use the government calculator before giving up an existing arrangement because it may not be possible to rejoin later.

Can you withdraw money from a Tax-Free Childcare account?

Yes, you can withdraw your own money from the childcare account when it is no longer needed. The matching government contribution is returned rather than being paid to you. This means withdrawing £100 from a balance created by an £80 deposit and £20 top-up would normally return £80 to you, with £20 going back to the government.

Keeping money in the account can be useful when childcare costs vary during the year, since the balance can remain ready for a later approved payment. It may also reduce the risk of paying a provider directly because the account was empty when an invoice arrived. Only deposit money you can manage without for other bills, as the account is designed for childcare rather than general savings.

A withdrawal is different from paying an unapproved person or buying something unrelated to childcare. The account can only send provider payments for qualifying childcare, and attempts to use the government top-up for other purposes aren’t permitted. Withdraw your own share properly through the account when plans change.

Is Tax-Free Childcare worth using?

Tax-Free Childcare is worth using when you qualify, your provider accepts it and you would otherwise pay the childcare bill entirely yourself. A 20% contribution can reduce a £500 bill to £400 from your own pocket, and the saving can apply to nursery, childminder, wraparound or holiday-club costs. The support is less useful when your provider isn’t registered or your annual childcare spending is very low, but even smaller top-ups still reduce a bill you were already going to pay.

The scheme needs a little administration because you must load the account, pay the provider through it and reconfirm every 3 months. Our own missed payments show that forgetting the correct route can remove the saving entirely. Setting reminders and keeping a suitable balance in the account can prevent that avoidable loss.

The Universal Credit rule changes the answer for any household receiving that benefit. You cannot use both schemes, and Universal Credit childcare support may cover a much larger share of approved costs for an eligible claimant. Check the official calculator before deciding which support applies to your household.

Frequently asked questions

What is Tax-Free Childcare?

Tax-Free Childcare is a government scheme that adds £2 for every £8 an eligible family pays into an online childcare account. The money is then used to pay an approved childcare provider. The standard top-up is capped at £2,000 a year for each child.

Can Tax-Free Childcare pay for holiday clubs?

Yes, it can pay for approved and registered holiday clubs, including care used only during school breaks. The provider must be signed up to receive Tax-Free Childcare payments. Check this before booking or paying a deposit.

Can I claim Tax-Free Childcare and Universal Credit?

No, you cannot claim Tax-Free Childcare at the same time as Universal Credit. Universal Credit has separate childcare support that can cover up to 85% of eligible costs, subject to its rules and limits. Use the official childcare calculator before changing schemes.

Can self-employed parents get Tax-Free Childcare?

Yes, self-employed parents can qualify when they meet the work, income and other eligibility rules. A person who started their business less than 12 months ago can qualify without meeting the normal minimum earnings threshold. Irregular income may sometimes be assessed using an annual average.

Does Tax-Free Childcare stop when my child starts school?

No, it can continue until the 1st of September after the child’s 11th birthday. It can pay for approved breakfast clubs, after-school care and holiday clubs. An eligible disabled child can remain covered until the 1st of September after their 16th birthday.

Can I use Tax-Free Childcare with 30 funded hours?

Yes, Tax-Free Childcare can be used alongside funded childcare hours when you qualify for both. It can help pay for approved childcare outside the funded sessions. It cannot be combined with Universal Credit or childcare vouchers.

What happens if I do not reconfirm every 3 months?

Your government top-ups will stop if you fail to reconfirm your eligibility. Sign into the childcare account and confirm that your details remain current. Set your own reminder as well as watching for HMRC’s text or email.

Can I withdraw unused money from Tax-Free Childcare?

Yes, you can withdraw the money you paid into the account. The matching government top-up is returned to the government rather than paid to you. Money can also be left in the account for a future approved childcare bill.