Tax-free childcare and childcare vouchers

Tax-free childcare is a government scheme to support working parents with childcare costs.

You cannot use tax-free childcare and claim working tax credits or universal credit at the same time as they are both tax-related benefits. Some parents are better off using tax-free childcare, others are better off claiming tax credits or universal credit. This childcare calculator will help you work out which government offers might be best for you.

You can use tax-free childcare alongside the 15 and 30 hours childcare for 2, 3 and 4-year-olds.

With tax-free childcare, you set up an account on the Childcare Choices website and for every £8 you pay in, the government will pay in an extra £2 (so the government pay you back the tax on your earnings). With this scheme you can get up to £2,000 per child, per year (or up to £4,000 for a disabled child) towards your childcare costs.

Tax-free childcare payments can be used with childminders, pre-schools, nurseries, schools, after school and holiday clubs. Not all childcare providers accept tax-free childcare payments so check with your provider first.

Childcare vouchers used to be the scheme for working parents to save money through a tax-free allowance from your employer. If you already use vouchers you can continue to do so, and can save up to £933 per year, per parent off the cost of your childcare. If you have not used them before, you need to sign up for the new scheme which is called tax-free childcare.

You can’t use childcare vouchers and claim working tax credits or universal credit at the same time as they are both tax-related benefits.

If you are registered for childcare vouchers, you need to order a childcare voucher at least once in a rolling 12-month period to stay eligible and registered in the scheme. The minimum order for a voucher is £20. Unfortunately the scheme is closed to new applications.

Staff registered for the salary-sacrifice scheme can continue to make use of the vouchers for all types of childcare including day nurseries, nannies, crèches, childminders and au pairs until their children leave school. Vouchers can also be used as payment for out of school clubs, extracurricular activities, breakfast and after school clubs, and holiday clubs.

The scheme allows basic rate tax paying parents to exchange up to £243 a month and higher rate paying parents £124 a month of their gross salary for childcare vouchers which is exempt from tax and National Insurance contributions. Both working parents can claim childcare vouchers whether they work for the same or different employers, making a family saving of up to £1,866 a year for basic rate tax payers and £625 for higher rate tax payers.

If you have any questions please email travel&benefitshfs@portsmouthcc.gov.uk

Depending on your income and family situation, you could be eligible for additional support to help pay your childcare costs. View the help with childcare costs page to find out more or go to the Childcare Choices website. You can also use the childcare calculator to find out what help you could be entitled to and to help you decide what options suit your family best.