Financial experts have warned hard working parents could be missing out on thousands of pounds in childcare payments by failing to sign up for a scheme because many wrongly think they are “ineligible”. HM Revenue and Customs (HMRC) has announced it is encouraging working families to save money by signing up to Tax-Free Childcare and using one of the thousands of facilities accepting it as payment.
Under the initiative, working families can save up to £2,000 annually for each child up to the age of 11, and £4,000 for a disabled child up to the age of 16, when they’re paying for their childcare For every £8 deposited in a Tax-Free Childcare account, the government tops it up by £2, which means parents can receive up to £500 (or £1,000 if their child is disabled) every 3 months towards their childcare costs. But Philly Ponniah, a Chartered Wealth Manager and Financial Coach at Philly Financial, said many parents just do not know they are eligible. She said: “As a financial coach, I see far too many parents miss out on Tax-Free Childcare, not because they’re ineligible, but because they don’t realise how ‘adjusted net income’ works.
“Many assume earning close to £100,000 means they’re automatically excluded, but with the right planning, it’s often possible to stay under the threshold and still qualify.
“The system is complex, and families shouldn’t have to navigate it alone or find out too late that they’ve lost thousands in support. I get multiple enquiries on this topic every week so some improvement on government guidance would help.”
Tax-Free Childcare means working families can save up to £2,000 annually for each child up to the age of 11, and £4,000 for a disabled child up to the age of 16, when they’re paying for their childcare. There are now 75,000 childcare settings accepting Tax-Free Childcare as payment including nurseries, registered childminders, holiday activity clubs and, for when school starts back in September, before and after school clubs.
HMRC is calling on more parents to sign up for support as the Government marks Playday 2025, an annual celebration of children’s right to play, highlighting the importance of play in their health, wellbeing and development.
Molly Pile, Chartered Financial Planner at Fernbank Wealth, said there is “no catch” to the childcare help. She added: “Tax-free childcare is super simple to use, and lots of childcare settings now link up their own apps to your Welcome to GOV.UK Childcare account to automate the monthly payments directly. Most parents just do not know it’s on offer or that it applies to them.
“You simply transfer 80% of the required amount into your Welcome to GOV.UK childcare account, where it is automatically topped up with the remaining 20%. You need to remember to reconfirm your details every three months, which the system prompts you to do.”
And Chloe Phillips, Certified Financial Planner and Financial Coach at The Money Makeover, said there is a “huge awareness gap”. She added: “I use Tax-Free Childcare to cover wraparound care, and I’m always surprised by how many parents I speak to think the scheme ends once nursery is over. When I received my first invoice from our primary school for breakfast and after-school club, there was no mention of Tax-Free Childcare being an option. I had to ask the school directly.
“There’s still a huge awareness gap. As a Financial Coach, I often come across high earners who assume they’re not eligible if they earn over £100,000. But with careful financial planning, such as making personal pension contributions to reduce adjusted net income, they can bring their income below the threshold and qualify for the support. The savings can really add up.”
Myrtle Lloyd, HMRC’s Chief Customer Officer, urged parents to visit the Government website and get signed up to the scheme. She said: “Whether your child is interested in football, climbing, crafting or dance, there’s a huge variety of childcare settings accepting Tax-Free Childcare. Children can learn something new and have fun with their friends while their parents save on their childcare bills. Visit GOV.UK to sign up today.”
Visit GOV.UK to check eligibility and register for Tax-Free Childcare.