how to fund your childcare

How to fund your childcare

21st June 2018

If you’re a parent, one of your significant monthly outgoings will be the cost of childcare. Figures from consumer group Which? show that the average price of a childminder in the UK is £109 per week, while it costs more than £110 a week to place your child for 25 hours in a nursery.

There are lots of different ways that you can fund your childcare, and our guide tells you everything you need to know. Keep reading to find out more.

Free childcare for three and four-year olds

Every three and four-year-old in England is entitled to 570 free hours of childcare per year. This must be an approved childcare provider, and it stops when your child starts in reception class.

It is usually taken as 15 hours a week for 38 weeks, but you can choose to take fewer hours over more weeks if you prefer. Your child is eligible for this the term after their third birthday.

Although every child is eligible for 15 hours’ childcare, you may be able to get up to 30 hours (1,140 hours per year). You can usually get 30 hours’ free childcare if you (and your partner, if you have one) are:
• in work or getting parental leave, sick leave or annual leave
• each earning at least the National Minimum Wage or Living Wage for 16 hours per week (£125.28 if you’re over age 25).

This earnings limit doesn’t apply if you’re self-employed and started your business less than 12 months ago.

To check your eligibility and apply head to the government website.

Free childcare for two-year-olds

If you receive specific benefits, you can also claim 15 hours a week free childcare for your two-year-old. You are eligible if you live in England and receive one of the following benefits:
• income support
• income-related Employment and Support Allowance
• income-based Jobseeker’s Allowance
• Universal Credit if you and your partner’s combined annual income from work is less than £15,400 after tax
• tax credits and your yearly salary is under £16,190 before tax
• the guaranteed element of State Pension Credit.

Help with paying for childcare

If you need to pay for childcare – perhaps in addition to the 15 hours you receive free per week – you can also get help towards this.

You are eligible for help paying for childcare if it’s provided by:
• a registered childminder, nursery, play scheme or club
• a registered school
• a homecare worker working for a registered agency
• a childminder with an Ofsted-registered childminding agency

You can check if a childcare provider is approved or search for one in:
England through Ofsted
Wales through the Care and Social Services Inspectorate Wales
Scotland through the Scottish Care Inspectorate
Northern Ireland through the local early years team register

Claiming tax-free childcare

Tax-Free Childcare is a government scheme introduced in 2017 to help working parents with the cost of approved childcare. You can use Tax-Free Childcare at the same time as the 15 hours or 30 hours of free childcare for two to four-year-olds.

You can’t use Tax-Free Childcare at the same time as:
• childcare vouchers
• Universal Credit
• tax credits.

Under the scheme, you can get up to £500 every 3 months (£2,000 a year) for each of your children to help with the costs of approved childcare. If you get Tax-Free Childcare, the government will pay £2 for every £8 you pay your childcare provider via an online account.

You can usually get Tax-Free Childcare if you (and your partner, if you have one) are:
• in work or getting parental leave, sick leave or annual leave
• each earning at least the National Minimum Wage or Living Wage for 16 hours per week (£125.28 if you’re over age 25).

You’re not eligible if either you or your partner has a taxable income over £100,000.

Your child must be 11 or under and usually live with you. Adopted children are eligible, but foster children are not. Your child stops being eligible on 1st September after their 11th birthday.

Your childcare provider must be signed up to the scheme before you can pay them and benefit from Tax-Free Childcare.

Using childcare vouchers

If you’re looking for a tax-efficient way to pay for childcare, ask your employer if they offer a childcare voucher scheme.

You can take up to £55 a week from your wages as childcare vouchers, which you don’t pay tax or National Insurance on. The amount you can take depends on the amount you earn and when you join the scheme.

Note that childcare voucher schemes will close to new applicants from October 2018. You may be able to get Tax-Free Childcare instead. You can’t continue to claim childcare vouchers if you successfully apply for Tax-Free Childcare.

You can keep getting childcare vouchers if you join a scheme and get your first voucher before the scheme closes in October 2018, as long as:
• you stay with the same employer, and they continue to run the scheme
• you don’t take an unpaid career break of longer than a year.

Whatever your circumstances, there are lots of ways you can fund your child care and your circumstances will dictate which is the best option for you. The government’s childcare calculator can help you to work out which type of support is best for you.

If you have a young child and you want to save for their future, we have a range of choices available including a Junior ISA and a Young Saver Plan. You can find out more about them here.