Benefits

Childcare Benefits Explained: Free Hours, Tax-Free Childcare & More

#Understanding Childcare Support in the UK

The cost of childcare can be one of the biggest expenses for working families. Fortunately, there are a number of government-backed schemes to help reduce the burden. Understanding what you're eligible forā€”and how to combine the optionsā€”can make a big difference.

#šŸ” Eligibility: Your Income (and Your Partnerā€™s) Matters

To qualify for schemes like 30 Free Hours or Tax-Free Childcare, both you and your partner (if applicable) usually need to be:

  • In paid work (including self-employment).
  • Earning at least the National Minimum or Living Wage for an average of 16 hours a week over the next 3 months.

#šŸ“ˆ Income Thresholds (based on age)

Age Group Total (3 months) Weekly Equivalent Estimated Annual Salary
Aged 21 or over Ā£2,539 Ā£195 ~Ā£10,158
Aged 18ā€“20 Ā£2,080 Ā£160 ~Ā£8,320
Under 18 or apprentice Ā£1,570 Ā£120 ~Ā£6,280

You can use your average earnings across the year if:

  • You donā€™t get paid regularly (e.g. zero-hour contracts or seasonal work).
  • Youā€™re self-employed and donā€™t expect to meet the minimum in the next 3 months.

šŸ’” Example: If you earn Ā£10,158 a year and you're aged 21+, thatā€™s Ā£2,539 per quarter on average ā€” so youā€™d qualify even without a regular income.

If you have more than one job, you can combine all your earnings, including:

  • Salary
  • Self-employment income
  • Freelance or part-time roles

#āš ļø Ā£100,000 Income Cap Applies to Each Parent

If either you or your partner earns over Ā£100,000 in adjusted net income per year, you wonā€™t be eligible for:

  • 30 Free Hours
  • Tax-Free Childcare

This includes salary, bonuses, dividends, rental income, and certain benefits.

āœØ Tip: BishBashDosh can help you check if increasing pension contributions (via salary sacrifice) could bring your adjusted net income back under the Ā£100k threshold ā€” making you eligible again.

#šŸ§” If You're a Foster Parent

You can claim free childcare for a foster child if:

  • Youā€™re in paid work outside your fostering role.
  • Your adjusted net income is under Ā£100,000.

You canā€™t apply online. Instead, speak with your social worker and local authority to apply.

#1. Free Childcare Hours (England)

You may be entitled to free childcare hours for children aged 2 to 4:

  • 15 Hours:

    • Available for all 3- and 4-year-olds.
    • Some 2-year-olds qualify depending on household income or benefits received.

  • 30 Hours:

    • For working parents of 3- and 4-year-olds.
    • Each parent must meet the income thresholds outlined above.

These hours are typically spread across 38 weeks of the year (term time).

#2. Tax-Free Childcare

  • For every Ā£8 you pay into a government childcare account, the government adds Ā£2 (up to Ā£2,000 per child per year, or Ā£4,000 if your child is disabled).
  • Available for children up to 11 (or 17 if disabled).
  • You must be working and meet the income requirements (minimum and maximum).
  • Can be used alongside 15/30 free hours, but not with childcare vouchers or Universal Credit.

#3. Childcare Vouchers (Closed to New Applicants)

  • This scheme closed to new applicants in October 2018.
  • If you're still enrolled, you can continue to use them as long as you stay with the same employer.

#4. Universal Credit for Childcare

  • You could claim back up to 85% of childcare costs.
  • Maximum monthly support is:
    • Ā£951 for one child
    • Ā£1,630 for two or more children
  • You must be on Universal Credit and both partners (or a single parent) must be working.

#5. Nursery Salary Sacrifice (Through Your Employer)

Some employers offer salary sacrifice for nursery fees:

  • Reduces your gross salary in exchange for direct childcare payments.
  • Lowers your taxable income and National Insurance contributions.
  • May affect eligibility for other schemes like Tax-Free Childcare or Universal Credit.

#Which Option Is Right for You?

  • Tax-Free Childcare is ideal for self-employed parents or those not eligible for Universal Credit.
  • Universal Credit is better for lower-income households.
  • 30 Free Hours are a great option for two working parents on moderate incomes.
  • If you're already using childcare vouchers, it's usually worth keeping them if they still offer more savings.

#Final Thoughts

With childcare costs rising, understanding and choosing the right benefitā€”or combination of schemesā€”can free up hundreds or even thousands of pounds each year.

Make sure to review your income and your partnerā€™s, including any potential bonuses or dividends. If youā€™re close to the Ā£100k limit, BishBashDosh can help you model the impact of salary sacrifice and keep you eligible for valuable benefits.

Smart planning today could make a big difference for your familyā€™s finances tomorrow.