Tax Free Childcare: Your questions answered

All parents eligible for Tax Free Childcare can open a Tax Free Childcare account online. For every 80p a parent/guardian pays in, the government will top up an extra 20p.

Here, our member's questions on Tax Free Childcare have been answered by HM Revenue and Customs (HMRC).

For more information on Tax Free Childcare see the Childcare Choices website here

What would happen if a parent was to overpay a childcare provider via a Tax Free Childcare account and how would the refund process work?

HMRC expect refunds to be rare, as it is more likely that the overpayment would be balanced out in the following bill. In cases where parents have more than one child being looked after at a setting and have mistakenly paid a bill for the wrong child using their Tax Free Childcare account, HMRC would accept, if the provider agreed with the parent, to reallocate the monies to the correct child, without needing to contact HMRC.
 
Any overpayment from a Tax Free Childcare account should be refunded from the childcare provider’s bank account into the child’s Tax Free Childcare account which the payment originated from. The Tax Free Childcare system will recognise this as a refund, which will ensure that the payment isn’t topped up a second time by HMRC in error.
 
Overpayments from non-Tax Free Childcare accounts can be refunded via the childcare provider’s normal process. However, overpayments from the Tax Free Childcare account should never be made directly to the parent’s personal non-Tax Free Childcare account, as in these situations the childcare provider would be liable for any top-up lost as a result.

See more information in 'Understanding the childcare service: a guide for childcare providers' here.

Can parents top up the Tax Free Childcare account with additional money?

Yes, this facility is made available for the convenience of parents. 
 
If the childcare bill is more than £2,000 for the quarter, then the parent can pay more into the account so that they can pay the whole bill from one account. However, only the first £2,000 per quarter will receive the government top up – this is because the government will only top up a Tax Free Childcare account with 20% of childcare costs up to a total of £10,000 - the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children).
 
If at the start of the next quarter there are any funds in the account that haven’t already been topped up, then they will immediately gain a government top up.

Can HMRC ask parents to inform their setting if they were to become ineligible for Tax Free Childcare?

HMRC would usually expect parents to tell their childcare provider if they are going to be using a different method of payment. However, HMRC cannot provide information on parents' eligibility directly to the setting.

What would happen if one parent was disabled?

Tax Free Childcare is a work incentive scheme and so there is a general principle that both parents must be working. However, if one parent is working and the other is in receipt of certain disability or caring benefits from the Department for Work and Pensions (including the Northern Ireland equivalents), then they may be able to receive Tax Free Childcare.
 
Disability and caring benefits that act as a passport to Tax Free Childcare are:

  • Incapacity Benefit
  • Severe Disablement Allowance
  • Long Term Incapacity Benefit
  • Carer’s Allowance
  • Contributory Employment Support Allowance
  • National Insurance Credits on the grounds of incapacity to work or limited capacity for work.

Will school nurseries also receive a letter about Tax Free Childcare, as well as private and voluntary nurseries?

All registered providers will receive an invitation. Those providers that are registered with Department for Education were in the last batch to receive their letters. Some providers will need to obtain a Unique Taxpayer Reference (UTR) from their Local Authority if they are not set up as a business in the own right, as they will need their UTR to register for Tax Free Childcare.

Does each individual child have a Tax Free Childcare account and how would the nursery identify as to which funds relate to which/each child?

Each child has a separate account and a unique reference number, which will allow the childcare provider to link the payment received from the Tax Free Childcare account to the child concerned. The reference number is made up of four letters and five numbers, followed by Tax Free Childcare. The letters are made up of the first initial and the first three letters of the surname of the parent making the payment. For example, AJON12345TFC. We are exploring the possibility of developing a mechanism to allow childcare providers to check which reference number belongs to which child.

What to do if you try to sign up and it doesn’t work:

There is a Tax Free Childcare Customer Interaction Centre (CIC) which childcare providers can call if they are having difficulty signing up for Tax Free Childcare. The CIC will be able to offer advice and guidance to help providers sign up. The number for the Customer Interaction Centre is 0300 123 4097.

What to do if you haven’t received your letter?

If you have misplaced  your Tax Free Childcare letter, you can call the Customer Interaction Centre who will be able to help you sign up on the above number.

What is Tax-Free Childcare?

Tax-Free Childcare was brought in from 2017 and is available to around two million working households to help with their childcare costs. Working parents with children under 12 (under 17 for disabled children) can set up an online childcare account to pay their childcare providers directly. For every £8 parents pay in, the Government will add £2, up to a maximum contribution of £2,000 per child, per year (£4,000 per year for disabled children). To qualify, parents must be in work and each earning at least £115 a week and not more than £100,000 per year. 

How do parents pay for Tax-Free Childcare?

Parents will be able to send payments directly from their Tax-Free Childcare account to your bank account. Each child will have a Tax-Free Childcare reference number. Parents can share their reference numbers to help you identify payments.

Visit Childcare Choices here