Tax-free childcare and help with childcare costs

How much does childcare cost?

The average cost of sending a child under the age of two to nursery or to a childminder in Great Britain is:

Childcare isn't cheap, and while the government has promised more support, parents with young children may be caught in a situation where they can't afford to go back to work. In this guide, we explain ways to ease the pressure on your budget.

In this guide, we explain the childcare schemes available to help parents - including tax-free childcare. Whether you're working, not working, on a low income or higher income, there are several options to help you pay for childcare.

However, these options can't all be claimed at the same time, so you'll have to choose which one best suits your circumstances.

Tax-free childcare

Tax-free childcare is a government scheme that pays working parents a 25% top-up based on what they pay for childcare. You can get up to a maximum of £2,000 a year, which is given when parents pay out at least £10,000.

The scheme was launched in April 2017, and is the main option for parents who are in work.

Am I eligible?

You (and your partner, if you have one) must be in work, or getting parental leave, sick leave or annual leave. If you're employed, you must both earn at least national minimum wage or living wage for 16 hours a week.

If you're self-employed and started your business less than 12 months ago, the earnings limit doesn't apply to you.

How much will I get?

You can get up to £500 every three months for each child. 

The government will pay 25% of what you pay an approved childcare provider via an online account. The provider must be approved for you to get the 25%.

Pros

• Can claim tax-free childcare at the same time as 30 hours free childcare if you're eligible for both.
• It only takes 20 minutes to apply online.
• As part of your application, you'll find out if you're eligible for both tax-free childcare and 15 or 30 hours free childcare.
• Can be used by self-employed workers.

Cons

• It doesn't apply to foster children.
• You can't claim if you or your partner earn over £100,000.
• It's only for children aged 11 or under.
• If you're not working, you can only apply if you're due to re-start work in the next 31 days.
• If you have a partner, both of you must be working to be eligible.

Working tax credit childcare element

The childcare element of working tax credit is designed to help parents on low incomes who are in work pay for childcare, to help them stay in employment.

Am I eligible?

You and your partner, if you have one, must work at least 16 hours a week to be eligible. If one of you is not working it must be because they're either incapacitated, in hospital, in prison or entitled to carer's allowance.

How much will I get?

You can get paid up to 70% of what you pay for childcare, up to a maximum of £175 per week for one child, or £300 a week for two or more children.

Pros

• If you're already claiming tax credits, you can just call HMRC to see if you can add an extra childcare element payment to your claim . You don't have to fill out a whole new application form to do this.

Cons

• It's complicated to work out yourself how much you'll receive.
• You have to call HMRC whenever your childcare costs change by an average of £10 or more a week, or if they stop.
• Your payments may be limited by the child tax credit two-child limit.

Free education and childcare for two-year-olds

This initiative will offer childcare for the term after your child's second birthday, and finishing the term after their third birthday. 

It offers up to 15 hours a week of free childcare, for 38 weeks per year. It can only be used with an approved childcare provider.

Am I eligible?

Your child must be two years old, you must live in England and you must receive one of the following benefits:

• Income support
• Income-based jobseeker's allowance
• Income-related employment and support allowance
• Universal Credit: if you and your partner (if you have one) have a combined working income of less than £15,400 a year after tax
• Tax credits: and you have an income of less than £16,190 before tax
• The guaranteed element of state pension credit
• The working tax credit four-week run on
• Support through part 6 of the Immigration and Asylum Act.

You can also be eligible if your child is:

• Looked after by a local council
• Has a current statement of special needs, or an education, health and care plan
• Gets disability living allowance
• Has left care under a special guardianship order, child arrangements order or adoption order.

You may be able to get free early learning and childcare for two-year-olds in Scotland, and there's the Flying Start programme in Wales for young children living in disadvantaged communities.

Eligibility criteria and services you get are different to what's on offer in England, so it's best to check on the respective government websites.

Unfortunately, there are no schemes to provide free childcare for children under two in Northern Ireland. But all parents of children aged between three- and four-years-old can apply to receive 12.5 hours per week of free preschool education.

How much will I get?

You won't get paid, but you'll benefit from free services.

Pros

• It does not affect your benefits. But if you use the childcare element of working tax credit or universal credit, you can only claim for any childcare you need above the 15 hours (the maximum you can get for free under the scheme).

Cons

• Free hours may only be available within set times and sessions.
• You have to apply through the local council where the childcare is based, so options depend on local availability.

• Find out more: how do Aldi and Lidl nappies compare?

15 and 30 hours free childcare for three and four-year-olds

All children in England that fall in this age range are eligible for 15 free hours of childcare a week for 38 weeks a year. Care must be from an approved childcare provider.

Am I eligible?

Everyone is eligible for 15 hours of free childcare. You may be able to get 30 hours free childcare a week if you or your partner are in work and earn at least the national minimum wage or living wage.

If either parent is on maternity, paternity or adoption leave, or is unable to work due to disability or caring responsibilities, then you may still be eligible.

However, neither parent can earn more than £100,000 a year to use the scheme.

How much will I get?

You won't get paid. The funding is sent to your childcare provider from your local council, so you'll benefit from free services.

Pros

• You can get 30 hours free childcare at the same time as claiming universal credit, tax credits, childcare vouchers and tax-free childcare.
• It takes 20 minutes to apply, and you'll also find out if you're eligible to claim tax-free childcare with the same application.

Cons

• It's offered through the local council where the childcare is based, so options depend on local availability.

Plan for free childcare to be extended to children from nine months

In the 2023 Spring Budget, Chancellor Jeremy Hunt announced plans to extend 30 hours free childcare to parents of children aged as young as nine months to reduce childcare costs and encourage parents back into work.

This is set to be rolled out gradually, with 15 hours childcare for two-year-olds being introduced from April 2024, which is then extended to children aged nine months from September 2024. 30 hours free childcare for all children under school age is then set to be available from September 2025.

What about the rest of the UK?

In Scotland, all three and four-year-olds are entitled to 30 hours free childcare a week during term-time. There is also a scheme for two-year-olds if you receive certain benefits and are on a low income. 

In Wales, all three and four-year-olds can get 30 hours of free childcare a week. The 30 hours is made up of a minimum of 10 hours of early education a week and a maximum of 20 hours a week of childcare.

If you're in Northern Ireland, three and four-year-olds get 12 and a half hours of free childcare per week during term time through a funded preschool place.

Universal Credit

The government's new benefits model is being rolled out across the UK. If you've already been moved on to Universal Credit, it will replace your tax credits and other income-related benefits.

Am I eligible?

You must already be eligible to claim the main element of Universal Credit. 

To qualify for the childcare element, you must both be in work if you're part of a couple, unless one of you has limited capability for work, regular and substantial caring responsibilities for a severely disabled person or are absent in prison, hospital or residential care.

How much will I get?

You'll get 85% of childcare costs covered, up to a maximum of £646.35 per month for one child, or £1,108.04 for two or more children. 

The Chancellor announced in his Spring Budget on 15 March that the amount parents on Universal Credit can claim back on childcare will rise to £951 per month for one child and to £1,630 for two or more children, but did not specify when this would come into effect.

Pros

• You get a higher proportion of childcare paid for than working tax credits.
• There is no set number of hours that you and your partner have to work.

Cons

• You could lose out if you have more than two children.
• You must tell the Universal Credit helpline if you stop working - and you can only claim childcare costs for a month after your job ends.
• You must have a job offer before you can claim again.

Find out more: how much Universal Credit will I get?

Childcare vouchers

The childcare voucher scheme is now closed to new applicants. If you're already enrolled, you may continue using the scheme for as long as your employer offers it.

Childcare vouchers are given out to employees by employers who decide to run the scheme. You swap your wages for the vouchers, which must be spent on approved childcare providers.

How much will I get?

You can take up to £55 a week of your wages as childcare vouchers. This means basic-rate taxpayers could gain £930 a year per parent, higher-rate taxpayers might get £624 a year and top-rate taxpayers can get £590.

Pros

• You can save on income tax and National Insurance payments, as the vouchers are taken out of your wages before tax.
• If you have already been given vouchers, there is no deadline for when you have to use them by.
• Only one parent needs to work to be eligible.
• It's for children who are aged 15 or under (as opposed to tax-free childcare, which is only for children under the age of 12).

Cons

• If you haven't already applied, you cannot enroll in the scheme.
• Whether you can continue to use the service depends on whether your employer continues to offer it.
• It's not available to anyone who is self-employed.
• You can't continue to claim if you take a career break for longer than a year.

Find out more: Which? Money podcast - childcare cost crisis