Thousands of working families in the UK could be missing out on £2000 a year from HMRC to help with the cost of childcare. This year, HM Revenue and Customs (HMRC) has put a reminder for working parents to claim a tax-free childcare account ahead of the February half term.
Recently, HMRC has been spreading cognisance about tax-free childcare. The 20% childcare top-up gives eligible working families £500 (or £1,000 if their children are disabled) per month tax-free payments for childcare expenses.
Almost 316,000 working families took advantage of tax-free childcare to alleviate some of their financial burdens in September 2021.
The government have paid 316,000 working parents a total share of £35 million in government top-up payments for childcare costs in September 2021. Comparing this to September 2020, there has been an increase of 90,000 families opting for the scheme.
Eligible families can receive tax-free childcare contributions by the government for every £8 received in the account; this means families will receive an additional £2 from the government. The scheme is only available for families in the UK with children under the age of 11. If your child is classed as disabled, you can receive the contribution until the age of 17.
Your entitlement is contingent on:
- Working conditions
- Your earnings and your partner’s earnings (If you have one)
- The age of your child and the conditions in which they live.
- Your immigration status
- And you must not be claiming a working tax credit, child credit, universal credit or childcare vouchers
When families deposit money into their childcare account, they can benefit from the 20% top-up. The childcare accounts are secure, easily accessible, and used to pay childcare costs when you need to. For example, parents and carers could use the money for their children to participate in holiday club activities. If you opt into this scheme, you will have to pay a deposit to benefit from the 20% government top-up and spread out the childcare cost throughout the year (12 months).
A tax-free childcare scheme is also available for pre-school children attending nurseries or if they have childminders. The scheme is to help families with young children as when raising they will have higher costs than older children, which can become a financial challenge. One should not ignore this valuable savings opportunity that could make all the difference to your financial affairs.
Childcare providers – including nursery schools, crèches and after school clubs – can sign up as approved childcare providers via GOV.UK to receive payments from parents who’ve signed up for the scheme. In addition, HMRC has released a revised tax-free childcare guide for parents that gives the rationale and benefits of joining the program.
Each tax-free childcare account requires its registration. Families with more than one eligible child must create separate accounts. The government top-up will be applied to each child’s account separately, not the households. Account-holders need to confirm their details every three months to continue receiving government funds for every eligible child per year.