Are you missing out on tax-free childcare?

The number of families using the government's tax-free childcare scheme is rising, but official figures suggest more than half aren't making the most of it. 

With childcare costs continuing to skyrocket, the scheme can play a vital role in reducing the financial burden for working parents. Yet many eligible families are either not using their accounts or not opening them in the first place. 

Here Which? explains how tax-free childcare works, who can claim it, and how you can maximise savings by combining it with free childcare schemes. 

What is tax-free childcare and how does it work?

Tax-free childcare is an online account that parents or guardians pay into. For every £8 you contribute, the government adds £2 – giving you a 25% top-up to help cover childcare costs.

The money isn't taken from your salary (unlike the old childcare voucher scheme), so it doesn't reduce your tax bill directly – despite the scheme’s name.

You can use tax-free childcare to pay for approved childcare for children up to age 11, or up to 16 if your child has a disability. If eligible, you can get up to £500 every three months, up to £2,000 a year, for each of your children. If your child is disabled, you can receive up to £4,000 a year. 

Childcare allowed under the scheme needs to be registered and can be: 

• Nurseries, nursery schools, pre-schools, or children’s centres
• Registered childminders or nannies
• School-based childcare
• After-school clubs and play schemes

According to HMRC, around 75,000 childcare settings now accept tax-free childcare as payment. 

Once your account is open, you can pay in and use the money straight away or save it for later. Any unused funds can be withdrawn at any time. 

• Find out more: tax-free childcare and help with childcare costs

Why some families aren’t using their accounts  

In the 2024-25 tax year, around 826,000 families used tax-free childcare for 1.08 million children – compared to 740,000 families for 966,000 children the year before.

In March, the government spent £55.3m on the scheme, which was £7m lower than its peak of £62.3m in July 2024.

Although the number of families using the scheme is increasing, the percentage of accounts being used each month has been declining. According to HMRC, only about half of all tax-free childcare accounts are being used each month.

Account usage dropped from 54.8% in October 2024 to 51.5% in February 2024, and then to 49.2% in March 2025.

HMRC says this is partly because the application for government-funded free childcare (the 15 or 30 hours schemes) is combined with the application for tax-free childcare. That means many families applying for free childcare are also eligible for a tax-free childcare account — so one is opened for them automatically. But those accounts are then often left unused. 

Rachael Griffin, tax and financial planning expert at wealth manager Quilter, says this shows many families aren’t getting the support they’re entitled to.

She said: 'The amount of money available from government has remained the same since 2017 despite childcare costs spiralling during that time.

'While every little helps, the overly complex system as it stands will inevitably put off some parents.'

• Find out more: how to apply for child benefit

Who is eligible to claim tax-free childcare?

To be eligible for the scheme, you must earn at least the minimum wage, for the equivalent of 16 hours a week either through employed or self-employed work.

If you're a couple, your partner must also earn this amount. Both you and your partner must earn less than £100,000 a year to qualify.

You can't use tax-free childcare if you're claiming Universal Credit or receiving childcare vouchers, although there are exceptions. For example, if one partner is working and the other receives Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or Employment and Support Allowance (ESA), you may still qualify. 

• Find out more: 11 cheap and free things to do with the kids this summer

How to make the most of childcare schemes 

HMRC advises parents to take full advantage of both free childcare and the tax-free childcare scheme to help reduce costs. 

Here's how to do that – and how the approach can vary slightly depending on where you live in the UK.

1. Use your free hours first

In England, working parents can get up to 30 hours a week during term time.

In Scotland, all three and four-year-olds are entitled to 30 hours of free childcare a week during term-time. There is also a scheme for two-year-olds if you receive certain benefits and are on a low income. 

In Wales, all three and four-year-olds can get 30 hours of free childcare a week. The 30 hours is made up of a minimum of 10 hours of early education a week and a maximum of 20 hours a week of childcare. Two-year-olds may also be eligible for free part-time childcare through the Flying Start programme. Although this cannot be used alongside the Tax-Free Childcare scheme. 

In Northern Ireland, three and four-year-olds get 12.5 hours of free childcare per week during term time through a funded preschool place. Unfortunately, there are no schemes to provide free childcare for children under two in Northern Ireland.

Being flexible can help make the most of the hours. It may be worth speaking to your employer to see whether you can adjust your working hours – for example, starting later or finishing earlier on certain days, or working longer hours over fewer days.

2. Consider 'stretching' the hours

Most free childcare offers – including those in England and Scotland – follow the school year, so they don’t cover holiday periods. 

However, many providers allow you to ‘stretch’ your hours across more weeks.

Stretching your entitlement over 52 weeks means fewer hours each week – around 22 instead of 30 – but it can help reduce the need for paid holiday cover. Wales already offers a more extended model of up to 48 weeks.

If this flexibility would help you, ask potential providers whether they offer stretched hours and how their fee structure works.

• Find out more: child benefit calculator

3. Use tax-free childcare for the rest

Once you've used up your free hours of childcare, you can use your tax-free childcare account to pay for any additional hours or fees.

This includes:

• Extra hours beyond your 30-hour entitlement for example, if you need 40 hours of childcare a week
• Fees for holiday periods if you are not stretching your free hours
• Any ‘extras’ that your provider charges, such as food, activities, or items such as nappies 

The tax-free childcare scheme can also be used for breakfast clubs, school holiday play schemes and camps such as sports, music, or adventure camps. This is good for children of school age.

Grandparents, family members, and even friends can also pay into your tax-free childcare account directly, which is a great way for relatives to help with childcare costs.