Are you missing out on help with childcare costs?

4 min read


Lots of families aren’t taking advantage of a scheme that offers money towards their childcare costs. Could you be one of them?

Pile of orange sweets

The Government’s Tax-Free Childcare (TFC) scheme offers people money towards their childcare costs, but less than one in 10 families who qualify are using it. Read on to find out what TFC is, how you qualify and things you need to consider before deciding to open an account.

How does Tax-Free Childcare work?

You can open an online TFC account through the Government’s online service. It’s essentially a savings account where you pay money in for your childcare, and is available for children aged 11 and under, or up to age 17 for children with disabilities. The bonus is that for every £8 you pay in, the Government adds an extra £2, up to a maximum of £2,000 per child per year. For disabled children the maximum is £4,000 per year.

The top up is added instantly, allowing you to then send electronic payments directly from the account to your childcare provider. Once you’ve set up the account, you have to sign back in every three months and confirm your details are up to date to keep getting the contributions from the Government.

Nearly 60,000 registered childcare providers – from nurseries to nannies and childminders to school clubs – have signed up to the service. You can even use the money to pay for regulated school holiday clubs. Check with your provider to see if they’ve signed up and ask them to if they haven’t.

Padlock and key

How do you qualify?

In order to qualify for TFC, you must:

  • Be working (employed or self-employed). If you have a partner they must be working too, although you may still qualify if one you is working and the other’s receiving certain benefits. Single working parents can also claim.
  • Expect to earn at least the National Minimum Wage or Living Wage for 16 hours a week on average over the next three months (this also applies to your partner, if you have one).  
  • Earn less than £100,000 a year (for each parent).

Please note that you won’t qualify if you’re from outside the European Economic Area (EEA) and your UK residence card says you can’t access public funds. For more details on eligibility, visit GOV.UK.

Is it the right option for you?

One of the challenges for parents is working out whether the TFC scheme is the best way to get help with childcare costs, as applying for it cancels your right to claim some other types of financial assistance.

You can’t get TFC at the same time as claiming Working Tax Credit, Child Tax Credit or Universal Credit. You also can’t get it at the same time as childcare vouchers. These vouchers are no longer available to new applicants, but if you’re already getting them, you can continue to do so and, for some people, they’ll be better off sticking with the vouchers. TFC tends to work out as better value than vouchers for those with higher than average childcare costs and/or more than two children, self-employed people and families with a disabled child.

You can use the Government’s childcare calculator to help you work out whether you’ll be better off with TFC.

The cost of childcare

The cost of childcare is simply staggering. People can expect to pay, on average, just over £1,000 a month for each child under the age of 3. The cost drops from age 3 as your local authority part-funds the cost of childcare when your child is 3 or 4, depending on your working status – this is known as ‘30 hours free childcare’ and you’ll need to check your eligibility and apply at GOV.UK. The table below shows average costs for full-time childcare at nursery, depending on the age of the child.

Average cost of full-time childcare (nursery) in England. This image is an infographic and has alternative text available if you are using a screen reader.

Average cost of full-time childcare (nursery) in England

Child aged 0 to 1:
  • Average yearly cost: £12,789
  • Actual cost (based on a typical family situation): £3,197 (assuming that for the first nine months of the child’s life there are no childcare costs, with a parent caring for the child until they go back to work)
Child aged 1 to 2:
  • Average yearly cost: £12,789
  • Actual cost (based on a typical family situation): £12,789
Child aged 2 to 3:
  • Average yearly cost: £12,483
  • Actual cost (based on a typical family situation): £12,483
Child aged 3 to 4:
  • Average yearly cost: £4,983 (assuming a family claims '30 hours free childcare' once a child reaches age 3)
  • Actual cost (based on a typical family situation): £4,983
Child aged 4+ at pre-school:
  • Average yearly cost: £4,983
  • Actual cost (based on a typical family situation): £2,491 (assuming a child starts school half way through)
Total expected spending on full-time childcare during pre-school years:
  • £35,943 (or £28,754 with TFC meeting 20% of the total cost)

Source: CORAM Family and Childcare Survey 2019 

More on managing your finances