How does Tax-Free Childcare work?

Tax-Free Childcare is a government-backed scheme where you open an online childcare account at Childcare.service.gov.uk. For every £8 you deposit, the government tops it up with £2, giving you £10 to spend on eligible childcare. The maximum government top-up is £2,000 per child per year (£4,000 for disabled children).

Who is eligible for Tax-Free Childcare?

You must be working (earning at least 16 hours at the National Minimum Wage, approximately £183/week). Both parents in a couple must be working. Neither parent can have adjusted net income over £100,000. Your child must be under 11 (under 17 if disabled). You cannot use TFC if you're already using the salary sacrifice childcare voucher scheme or claiming the childcare element of Tax Credits.

How much can I save with Tax-Free Childcare per year?

You can save up to £2,000 per child per year, or £4,000 for a disabled child. To receive the maximum £2,000 top-up, you need to deposit £8,000 per child per year (£666/month). If you deposit less, you receive a proportionally smaller top-up.

Can I use Tax-Free Childcare and free hours together?

Yes. These are separate entitlements that can be combined. Free hours reduce the number of paid childcare hours. Tax-Free Childcare then provides a 20% top-up on your remaining childcare costs. Using both together maximises your total saving.

Tax-Free Childcare vs Universal Credit: which is better?

You cannot claim both. Universal Credit childcare support covers 85% of eligible costs (up to set maximums), which is almost always better value than Tax-Free Childcare (20%). If you're on UC, you should generally use the UC childcare element rather than TFC. TFC is better for families not on UC who are paying higher rates of childcare.

What childcare can Tax-Free Childcare pay for?

Tax-Free Childcare can pay for any Ofsted-registered provider in England including nurseries, childminders, after-school clubs, holiday clubs and nannies (if Ofsted-registered). The provider must be signed up to receive TFC payments. In Scotland, Wales and Northern Ireland, providers registered with the equivalent regulators are also accepted.

How do I apply for Tax-Free Childcare?

Apply online at Childcare.service.gov.uk using your Government Gateway login. The application takes around 5–15 minutes. You'll need your National Insurance number, employer details or UTR if self-employed, and your child's date of birth. You must reconfirm your eligibility every 3 months to keep the account active.

What is the difference between Tax-Free Childcare and childcare vouchers?

Childcare vouchers via salary sacrifice were closed to new entrants in October 2018. Tax-Free Childcare replaced this scheme. If you were already enrolled in vouchers before October 2018, you can continue using them but cannot switch to TFC. For most working families, TFC is more flexible and provides greater savings than the old voucher amounts.

Can I withdraw money from my Tax-Free Childcare account?

You can withdraw money from your TFC account if you no longer need it for childcare, but any government top-up on that money will be clawed back. You only keep the top-up when the funds are paid to an eligible childcare provider. Do not treat your TFC account as a savings account — it is specifically for paying registered providers.

How long does it take to open a Tax-Free Childcare account?

The online application typically takes 5–15 minutes. Your account is usually set up within a few working days. You can start depositing money immediately and paying providers as soon as the account is active. There's no delay in the government top-up — it appears in your account as soon as you deposit funds (up to the quarterly limit).

Tax-Free Childcare Savings Calculator

Monthly childcare cost (£)

Number of children

Any child with disability?

Free childcare hours already used?

What Is Tax-Free Childcare?

Tax-Free Childcare (TFC) is a UK government scheme administered by HMRC that gives working parents a 20% top-up on eligible childcare costs. The scheme works through a dedicated online account: for every 80p you deposit, HMRC adds 20p, making the total £1 of childcare credit. This is the mathematical equivalent of getting childcare at a 20% discount.

The scheme replaced the old employer-supported childcare voucher scheme which closed to new entrants in October 2018. Unlike vouchers, TFC is not employer-dependent — you manage it yourself directly with HMRC.

How Tax-Free Childcare Works: Step by Step

Example: Family spending £1,000/month on nursery

Open your Tax-Free Childcare account at Childcare.service.gov.uk — takes about 5–10 minutes

Deposit £800 into your TFC account (you want £1,000 total)

HMRC automatically adds £200 (25% on your £800 = 20% of the total £1,000)

Your account now shows £1,000 — pay the nursery directly from the account

Repeat monthly. Annual saving: up to £2,400 (but capped at £2,000 government top-up)

Tax-Free Childcare Eligibility 2026

To use Tax-Free Childcare, all of the following must apply:

Working: You (and your partner if you have one) must each be working and earning at least 16 hours per week at the National Minimum Wage — approximately £183/week or £9,518/year in 2025/26
Income cap: Neither you nor your partner can have adjusted net income above £100,000 per year
Child's age: Your child must be under 11 years old (under 17 if they have a disability)
Not on certain other schemes: You cannot use TFC if you already receive childcare through Tax Credits (Working Tax Credit childcare element), Universal Credit childcare, or employer childcare vouchers
UK residence: You and your child must be UK resident

Grace Periods

If you temporarily stop working (e.g. redundancy, parental leave), you have a grace period of one reconfirmation period (approximately 3 months) during which your TFC account stays active. Self-employed parents with low earnings in any quarter may also benefit from a grace period.

What Can Tax-Free Childcare Pay For?

Your TFC account can pay any Ofsted-registered childcare provider in England, including:

Nurseries and day care centres
Registered childminders
Before and after-school clubs
Holiday clubs and activity camps
Nannies (if individually Ofsted-registered)
Nursery schools (maintained and private)

The provider must be signed up to receive TFC payments. Most established nurseries and childminders are already registered. Check with your provider if unsure — they register at Childcare.service.gov.uk as a provider.

Maximum Savings: The Numbers

The government tops up contributions at a rate of 20% on the total childcare spend (equivalent to 25p per 80p you deposit):

Standard child: Maximum government top-up = £2,000 per year per child. To receive the full £2,000, you need to spend £10,000 in childcare per year (deposit £8,000, government adds £2,000).
Disabled child: Maximum top-up = £4,000 per year. Requires £20,000 in childcare spend (deposit £16,000, government adds £4,000).
Quarterly limit: You can deposit up to £2,500 per child per quarter (total £10,000/year). Government adds up to £500 per quarter per child.

Tax-Free Childcare vs Universal Credit Childcare: Which Should I Choose?

Tax-Free Childcare

Government adds 20% top-up
Max £2,000/child/year saving
For any working family
Apply at Childcare.service.gov.uk
Works alongside free hours

Universal Credit Childcare Usually better

Government covers 85% of costs
Max £1,014/month (1 child)
Only for UC claimants in work
Cannot use alongside TFC
Works alongside free hours

Tax-Free Childcare vs Childcare Vouchers

The employer childcare voucher scheme via salary sacrifice closed to new entrants in October 2018. If you are already enrolled in a voucher scheme, you can continue — but you cannot switch to TFC and come back. For most families joining childcare arrangements now, TFC is the only option (other than UC childcare). TFC is generally more flexible and provides higher savings than the old maximum £55/week voucher amount for basic rate taxpayers.

How to Apply for Tax-Free Childcare

Go to Childcare.service.gov.uk and sign in with your Government Gateway ID (or create one if you don't have one)
Select "Apply for Tax-Free Childcare" and complete the short eligibility questions
Your account is usually set up within minutes to a few working days
Deposit money using bank transfer or debit card
Pay your provider by searching for their name in your account and sending payment directly
Every 3 months, HMRC will ask you to reconfirm your eligibility — do not miss this

Common Mistakes to Avoid

Missing the quarterly reconfirmation: If you miss the window, your account is suspended and the government top-up stops. Reinstating it can mean losing a month or more of funding.
Confusing TFC with free hours: They are completely separate. Free hours reduce your paid hours; TFC top-ups your remaining costs.
Paying providers directly then reimbursing yourself: You cannot pay a provider and then claim back through TFC. You must pay the provider from your TFC account directly.
Depositing too much in quarter 1: Some people deposit a lump sum in the first quarter. The quarterly cap is £2,500 per child. Any excess over £2,500 in a quarter receives no top-up.
Not registering your provider: Your provider must be signed up to accept TFC payments. Check before you start.

Worked Example: Higher Childcare Costs

Family with two children (ages 1 and 4) in full-time nursery in a city outside London:

Child 1 (age 1): nursery costs £900/month, no free hours
Child 2 (age 4): nursery costs £400/month after 30 free hours
Total monthly spend: £1,300

Using TFC for both children:

Deposit £720 for Child 1 → HMRC adds £180 → pay nursery £900
Deposit £320 for Child 2 → HMRC adds £80 → pay nursery £400
Monthly saving: £260 (£180 + £80)
Annual saving: £3,120 (under the combined £4,000 cap for two standard children)

Tax-Free Childcare: Frequently Asked Questions

How do I pay my nursery through Tax-Free Childcare?

Log into your TFC account at Childcare.service.gov.uk. Search for your nursery or provider by name and postcode. Select them and enter the amount you want to pay. The payment is sent to the provider's bank account, usually within 1–3 working days. Keep receipts and payment records for your tax return if relevant.

Can I use Tax-Free Childcare for holiday clubs?

Yes, provided the holiday club or activity camp is registered with Ofsted (or the equivalent regulator in Scotland, Wales or Northern Ireland). Many summer camps, sports clubs and holiday schemes are Ofsted-registered. Check with the provider before assuming — some are not registered and therefore cannot accept TFC payments.

What if my income goes above £100,000 part-way through the year?

You must stop using your TFC account and inform HMRC if your adjusted net income is expected to exceed £100,000. If income rises temporarily due to a bonus, you may still be able to continue if your annual average is under £100,000. Making pension contributions can reduce your adjusted net income below the threshold. Seek advice from a financial adviser or accountant if you're near the boundary.

Can a self-employed parent use Tax-Free Childcare?

Yes. Self-employed parents are fully eligible for TFC. HMRC uses your expected earnings for the quarter to assess eligibility. If you're in your first year of self-employment, you automatically qualify during the startup period even if your earnings are initially low. Once established, your quarterly earnings must meet the minimum NMW equivalent threshold to remain eligible.

Does Tax-Free Childcare work for children with disabilities?

Yes, and the limits are doubled. Disabled children can receive a government top-up of up to £4,000 per year (versus £2,000 for non-disabled children). Your child must be claiming Disability Living Allowance or another qualifying disability benefit. The account works the same way — just with higher contribution and top-up limits. Apply as normal at Childcare.service.gov.uk and confirm your child's disability status.

Can I have TFC accounts for multiple children?

Yes. You have one TFC account per child, managed through the same parent account login. Each child has their own balance and top-up limit (up to £2,000/year per standard child). You deposit and pay separately for each child from the same account dashboard. Having multiple children multiplies your maximum total saving.

What happens to money in my TFC account if I stop being eligible?

If you stop meeting eligibility criteria, you can continue to use any funds already in your account to pay for childcare, but you cannot receive any more government top-ups on new deposits. Any funds you withdraw (rather than spending on childcare) will have the government contribution element removed before payment. In other words, HMRC claws back the top-up on any amounts not spent on childcare.

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Mustafa Bilgic
Financial content writer specialising in UK family finance, HMRC schemes and tax. All figures verified against HMRC guidance for 2025/26. Last updated: February 2026.