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.
A number of members raised questions at recent member events answered here by HM Revenue and Customs.
For more information on Tax Free Childcare click here
. You can also find previous questions answered in regards to the Tax Free Childcare sign up process
What would happen if a parent was to overpay a childcare provider via a Tax Free Childcare (TFC) account and how would the refund process work?
There is 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 TFC 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 TFC account should be refunded from the childcare provider’s bank account into the child’s TFC account which the payment originated from. The TFC 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-TFC accounts can be refunded via the childcare provider’s normal process. However, overpayments from the TFC account should never be made directly to the parent’s personal non-TFC account, as in these situations the childcare provider would be liable for any top-up lost as a result.
Can parents top up the TFC 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 TFC 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?
TFC 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 TFC.
Disability and caring benefits that act as a passport to TFC 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 DfE 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 TFC.
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 4 letters and 5 numbers, followed by TFC. The letters are made up of the first initial and the first 3 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.