I was grateful that my baby son could receive subsidised childcare support from the government last September. He was much better entertained by trained professionals with more energy. He has learnt words and skills that we didn't teach him - like "uh-oh" and blowing kisses. Cute!
This blog post isn't going to replicate the excellent government website that takes you through your options and conditions. Instead, I reflect on my experiences and share the pitfalls I came across.
Quick Steps
Have a baby
Make sure they are not too young and not too old
Be a working parent
Make sure your income isn't too low and isn't too high
Find a childcare provider
Have a Government Gateway account
This is highly simplified. There are additional complexities if you are claiming Universal Credit (which is a separate scheme) or if your child is disabled (where the conditions are relaxed).
Quick Guidance on Childcare Support
The key thing: there are different schemes and you can apply for more than one. As a distracted parent I focused in on the 15 free hours (for 9 month olds) and forgot about the Tax Free Childcare. Don't make the same mistake!
15 free hours (of childcare support): the payment goes straight from the government to the nursery
Tax Free Childcare: deposit money into a childcare account. This acts like a bank account with its own account number and sort code. The deposit is topped up by 25% up to a maximum of £2,000 per year.
Other confusing bit: there is a single application webpage (link) for both schemes and both schemes are managed out of a single Childcare Account (link).
You will need to have a Government Gateway login. Yes, this is the same one you use if you do your own self-assessment or have a personal tax account. Somehow it is all linked in the background via government wizardry / magic / good IT.
15 free hours of childcare per week is based on a 38-week term. If you need year-round childcare then 15 free hours translates to 11 hours and 11 minutes a week (15 hours times 38 weeks divided by 31 weeks = 11.18 hours).
The 15 free hours doesn't cover meals! Your nursery will have an additional monthly charge for this.
After a successful application there is a reference code that you need to give to your nursery. This gets the 11.18 hours of childcare deducted from the monthly invoice.
Payments to the nursery can be paid directly out of your own pocket or managed out of the Childcare Account. You need to use the Childcare Account if you want to take advantage of the 25% top-up. Fortunately, your childcare provider is linked to the Childcare Account so payments are super quick.
How much is 15 free hours worth? About £6,000 a year.
Good news - the number of hours for under 2s is expanding from 15 to 30 from September 2025! It's confirmed on the BBC and Childcare Choices website. However, nurseries are telling me that it hasn't been confirmed into legislation yet.
Quick Tips to Avoid the £100,000 Cliff Edge
The subsidy is generous but you lose it all if one of the parents earns more than £100,000 per year (HMRC link). If you earn £100,001, then you lose a £6,000 benefit. Ouch.
Specifically, the £100k is based on adjusted net income. The HMRC have a comprehensive but complex definition of this. The quick summary is:
Add together all income sources (salary, rent, dividends, etc)
Take off Gift Aid donations (at gross value, being actual donation x 1.25)
Take off pension contributions
This is your adjusted net income
From the point of view of economists who aim for well-designed tax systems that don't distort behaviour, cliff edges like this are terrible. If you are an employee, the ways to avoid the cliff edge are:
Defer bonuses
Defer pay rises
Take unpaid leave
Make contributions to charity
Make extra pension contributions, either privately or via your workplace pension
For limited company director/shareholders, their existing flexibility with controlling salary/dividend payments helps out here.
Quick Takeaway
Do share this blog post with interested parents. Have a chat with me if you need help to avoid the £100k Cliff Edge.
Quick Links
Official government guidance: https://www.childcarechoices.gov.uk/
Step by step guide: https://www.gov.uk/get-tax-free-childcare
Direct link to the Childcare Account sign-in page: https://childcare-support.tax.service.gov.uk/par/app/trialmessage
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