Money Saving Expert Martin Lewis has warned that 300,000 UK households are failing to claim up to £2,000 annually through the government's Tax-Free Childcare scheme, which he argues is poorly named and underutilized. The scheme offers a 25% top-up on childcare costs for working families, but Lewis believes its confusing title deters eligible parents.
How the Tax-Free Childcare scheme works
Under the scheme, parents pay money into an online childcare account, and the government adds 25% on top. For example, if a parent pays in £8, the state contributes £2 the same day. The maximum top-up is £500 every three months, or £1,000 for children with disabilities, equating to roughly £2,000 per year for an average family. The account can only be opened by one parent, but both can use the funds.
Eligibility criteria
The scheme is available for children under 12 (up to the September after their 11th birthday), or up to age 16 for those with disabilities. Both parents (if living together) must be employed or self-employed, earning at least £10,500 annually (equivalent to 16 hours at minimum wage for those over 21) and no more than £100,000 in adjusted income. Those on sick or parental leave, or certain benefits like Carer's Allowance, may still qualify. Childcare providers must accept Tax-Free Childcare payments.
Reconfirmation requirement
Parents must reconfirm eligibility four times a year. Lewis notes the process is quick, but failure to reconfirm by the deadline means losing the top-up. Reminders are sent, but many miss the deadline.
Setting up an account
Eligible families can open an account via the government website in about 20 minutes, needing their National Insurance number and, if self-employed, their unique taxpayer reference. Payments can be made via standing order or debit card (not direct debit), and grandparents can also contribute. Funds should be transferred before 2:30pm for same-day arrival with the childcare provider.
Lewis is campaigning to rename the scheme to 'Working Family Childcare Top-up' to improve awareness and uptake, as the current name is misleading since it is not actually tax-free. He emphasizes that the confusion is a key reason 300,000 families miss out.
