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, 2024-25 rates) vary by age:

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:

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:

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:

A Universal Credit award counts here whatever its size, but Universal Credit is paid only on a claim. So a family that would get more from Tax-Free Childcare than from its award does not claim: forgoes_universal_credit_for_tax_free_childcare compares what the claim brings (the award before the benefit cap and deductions, and in Scotland the Scottish Child Payment the award qualifies its children for) with the top-up the family would get without a claim (tax_free_childcare_without_universal_credit). A family that forgoes the award gets no Universal Credit and keeps Tax-Free Childcare. A family receiving a legacy award that a Universal Credit claim would end keeps its claim, since the comparison does not weigh that award.

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:

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:

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

  • Pays 20% of the childcare expense, up to £2,000 a year for each child, or £4,000 for a disabled child

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

Example table: