Tax-Free Childcare explained

What Tax-Free Childcare is and how the top-up works

Tax-Free Childcare (TFC) is a government-backed savings account scheme where for every £8 you deposit, the government adds £2. That is effectively a 20% top-up on your childcare costs, or to put it another way, you pay 80p in every £1 of eligible childcare.

The scheme works through a government online childcare account. You deposit money into the account, and the top-up is added automatically. Payments are made directly to registered childcare providers — nurseries, childminders, after-school clubs, holiday camps and similar.

For most children, the maximum government top-up is £2,000 per child per year. For a disabled child, the limit doubles to £4,000 per year. If you have two children, the maximum is £4,000 a year. Three children, £6,000 — and so on.

Who qualifies for Tax-Free Childcare in 2026/27

To be eligible, you and your partner (if you have one) both need to be working. There is no minimum hours requirement, but you each need to earn at least the equivalent of 16 hours at the National Minimum Wage per week on average. That is currently around £187 a week for most adults.

There is also an upper earnings limit. If either you or your partner earns over £100,000 a year, neither of you can claim Tax-Free Childcare for that tax year.

The child must be 11 or under at the start of the relevant term (up to 1 September after their 11th birthday). Disabled children can use the scheme until age 16.

You need to use registered childcare. Cash payments to unregistered carers, including family members who are not registered childminders, do not qualify.

How Tax-Free Childcare compares with Universal Credit childcare support

This is the most important comparison for many families. Tax-Free Childcare and Universal Credit childcare support cannot be claimed at the same time. You have to choose one route.

Universal Credit childcare support reimburses up to 85% of eligible registered childcare costs, capped at £1,071.09 a month for one child or £1,836.16 for two or more children. If your childcare bill is high and your income is within UC range, the UC route can be significantly more valuable than the flat 20% TFC top-up.

Tax-Free Childcare tends to be better for higher earners — particularly above the UC earnings threshold — where UC childcare support either does not apply or provides minimal help. A family spending £20,000 a year on childcare for two children gets £4,000 back through TFC rather than the lower percentage they might receive at high earnings through UC.

The comparison always comes down to your specific income, childcare costs and whether you are already on Universal Credit. Running both calculators side by side — the TFC calculator and the Universal Credit calculator — gives the clearest picture.

Free hours and Tax-Free Childcare — can you combine them?

Tax-Free Childcare can generally be used alongside free hours entitlements. The government-funded free hours (15 or 30 hours depending on age and eligibility) are separate from TFC, and TFC can be used to cover costs beyond the free hours.

For example, if your child has 15 free hours and attends nursery for 40 hours a week, you pay for the extra 25 hours privately. Tax-Free Childcare top-up can be applied to those privately paid hours.

From September 2024, 15 hours free childcare was extended to children from 9 months old whose parents meet the working threshold. By September 2025, 30 free hours was extended to children from 9 months. That has significantly reduced the amount families need to pay privately, which in turn affects how much TFC top-up is available and how it stacks against the UC childcare route.

How to apply and what to watch for

You apply through the Government Gateway or Childcare Choices website. DWP and HMRC both need to confirm you meet the eligibility conditions, which typically takes around 24 hours online.

Your eligibility is reconfirmed every three months. If you do not reconfirm, your account is paused and you lose access to the government top-up temporarily. Setting a diary reminder for the reconfirmation date matters.

If you or your partner has a gap in employment — for example during maternity leave or while between jobs — there is a grace period. You can continue using Tax-Free Childcare for a return-to-work period after employment ends, though specific rules apply. Checking the official Childcare Choices site is the most reliable source during a transition.