14 February 2020

Study of tax-free childcare scheme use reveals “widespread lack of awareness and confusion”

5 min read

 
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Becky O'Connor

Personal Finance Specialist

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HMRC has published a report reviewing the barriers to sign-up and use of the Tax-Free Childcare support scheme - the report can be found here

The Government has recognised that uptake of Tax-Free Childcare has been lower than anticipated. The Government estimated that 1.3 million families would be eligible, yet just over 1 in 10 - 172,000 – families, are claiming the support, according to the most recent statistics

Among eligible parents, the study revealed:

  • A lack of awareness of the scheme
  • Poor understanding of benefits
  • The view that other schemes meet their needs ie. childcare vouchers/ 30 hrs
  • The perception that the financial incentive is too low to bother with

Among other findings from the survey:

  • Within one group of parents surveyed, 42% had not logged back in after setting it up
  • Some parents assumed they were not eligible because they thought their household income was too high
  • Some parents are confusing the eligibility criteria for Child Tax Credit, Child Benefit and Tax-Free Childcare and 30 hrs funding
  • Some parents of children older than 4 think they are ineligible because their children are too old

Becky O’Connor, personal finance specialist at Royal London, said:

“The results of this survey two years after tax-free childcare was introduced reveal a widespread lack of awareness and confusion. Childcare is an expensive and necessary cost for working parents. The Government needs to do more to boost awareness and understanding of the benefits of this scheme, which can save parents thousands of pounds off a full-time pre-school childcare bill every year.”

In its Family Financial Planning Guide, Royal London calculated that the typical cost of full time childcare for a 1-2 year old child is £12,789. Tax-free childcare would pay £2,000 of this bill (there is a per child maximum of £2,000 per year).

The survey was one of a suite of updates on the delivery of tax-free childcare, two years after its introduction, published on Friday February 14 2020, which also included:

  • Increasing the uptake of government childcare offers - see here 
  • Parents’ and providers’ experience of tax-free childcare - see here
  • Perception of impact report - see here

About Royal London:

Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £138.9 billion, 8.6 million policies in force and 4,126 employees. Figures quoted are as at 31 December 2019.

For further information please contact:

Becky O’Connor, Personal Finance Specialist