I’ll revise the document to focus only on employment and self-employment income:

Tax-free childcare

Official government guidance | Legislation

Program description

Overview

Tax-free childcare helps working families with childcare costs. For every £8 paid into a childcare account, the government adds £2.

The program provides financial support up to £2,000 per year (£500 per quarter) for each eligible child. For disabled children, this support increases to £4,000 per year (£1,000 per quarter).

Eligibility requirements

Age criteria

Standard childcare support extends until September 1st following the child’s 11th birthday. For disabled children who receive disability benefits or are certified as blind/severely sight-impaired, support continues until September 1st following their 16th birthday.

Income requirements

The program considers employment and self-employment income. The maximum adjusted net income allowed is £100,000 per year for each partner. Minimum earnings requirements (per 3 months) vary by age:

Age group	Minimum earnings
21+	£2,379
18-20	£1,788
Under 18/Apprentices	£1,331

Work status

Eligible individuals must be either employed, self-employed, or on qualifying leave (sick, annual, or shared parental leave). Applications can be submitted if starting work within 31 days.

Non-working partners may still qualify if they receive any of these benefits: incapacity benefit, severe disablement allowance, carer’s allowance, or contribution-based employment and support allowance.

Additional rules

Income assessment

The program considers:

• Employment income

• Self-employment income

• New self-employed businesses (under 12 months) benefit from more flexible earnings requirements

Program interactions

Tax-free childcare is compatible with the 15/30 hours free childcare program but cannot be combined with:

• Working tax credit

• Child tax credit

• Universal credit

• Childcare vouchers

When approved for tax-free childcare:

• Existing benefits terminate automatically

• Childcare vouchers must be cancelled within 90 days

Implementation

In the following steps, we explain how PolicyEngine models the Tax-Free Childcare program through parameter definitions and calculations.

1. Age determination

First, we determine which children in the household are age-eligible for the program, as Tax-Free Childcare is only available until specific age thresholds.

• standard.yaml and disability.yaml define age thresholds

• tax_free_childcare_child_age_eligible.py calculates eligibility by:

  • Checking person’s age

  • Determining disability/blind status

  • Applying appropriate age limit (standard or disability-based)

  • Returns boolean indicating if age requirement is met

Example table:

Child age	Is disabled	Is age eligible
10	False	True
12	False	False
15	True	True
17	True	False

2. Income assessment

After identifying eligible children, we evaluate if the parents meet the income criteria, examining both minimum and maximum thresholds.

• countable_sources.yaml specifies eligible income types

• income_limit.yaml sets the maximum income threshold

• minimum_weekly_hours.yaml defines weekly work requirements

• tax_free_childcare_meets_income_requirements.py calculates:

  • Annual eligible income from countable sources

  • Quarterly income requirements (income / 4)

  • Minimum threshold based on minimum wage and required hours

  • Compliance with income limits using adjusted net income

Example table:

Adult age	Quarterly earnings	Is over £100k	Is income eligible
22	£3,000	False	True
19	£1,500	False	False
35	£10,000	True	False
25	£4,000	False	True

3. Program compatibility

We check if the household receives any benefits that would make them ineligible for Tax-Free Childcare.

• disqualifying_benefits.yaml lists incompatible benefits

• tax_free_childcare_program_eligible.py:

  • Checks person’s benefit unit for disqualifying benefits

  • Returns true if no incompatible benefits are received

Example table:

Receives working tax credit	Receives child tax credit	Receives universal credit	Is eligible for program
False	False	False	True
True	False	False	False
False	True	False	False
False	False	True	False

4. Work status

The program requires parents to be working, with special provisions for couples where one partner has a disability.

• tax_free_childcare_work_condition.py evaluates:

  • Single adults: must be working

  • Couples: either both working or one working with partner having disability

  • Disability status based on relevant benefit receipt or incapacity benefit

  • Returns boolean indicating if work requirements are met

Example table:

Family composition	Is partner 1 working	Is partner 2 working	Is partner 2 disabled	Meets work condition
Single	True	N/A	N/A	True
Single	False	N/A	N/A	False
Couple	True	True	False	True
Couple	False	False	True	False

5. Final eligibility

We combine all previous eligibility checks to determine overall household qualification.

• tax_free_childcare_eligible.py checks:

  • At least one child meets age requirements

  • All adults meet income requirements (except children)

  • No disqualifying benefits are received

  • Work conditions are satisfied

  • Uses logical AND to combine all conditions

Example table:

Is age eligible	Is income eligible	Is program eligible	Meets work condition	Is eligible overall
True	True	True	True	True
False	True	True	True	False
True	False	True	True	False

6. Contribution calculation

For eligible households, we calculate the government contribution amount.

• tax_free_childcare.py:

  • Identifies disabled/blind status for each child

  • Applies appropriate rate (standard or higher) based on disability status

  • Caps contribution based on actual childcare expenses

  • Sums total contribution across all eligible children in the benefit unit

Example table:

Is eligible	Is child disabled	Annual childcare expense	Annual government contribution
True	False	£8,000	£2,000
True	True	£8,000	£4,000
False	False	£8,000	£0
True	True	£12,000	£4,000