Tax-Free Childcare Explained: How the Top-Up Works, Who Qualifies and How to Use It

Tax-Free Childcare is a UK government scheme for working parents. You pay into an online childcare account, the government adds £2 for every £8, and you pay a registered provider from it. The top-up is capped at £500 per child every three months (£2,000 a year), or £1,000 (£4,000 a year) for a disabled child. You and any partner must each expect to earn at least £2,643.68 over the next three months if you are 21 or over, and neither of you can have adjusted net income over £100,000. Reconfirm your details every three months or the top-ups stop.

Think of it as a 25% bonus on the money you put towards childcare. Put a £1,000 nursery bill through the account and you only pay in £800 of it. The catch is that it runs on a three-month clock, has a cap, and quietly stops paying if you forget to check in. Here is how it works in practice, with real numbers.

The quick maths: multiply the bill by 0.8

To work out what to pay in, multiply your childcare bill by 0.8. The government adds the other 20%. Your payment usually shows up in the account within one working day, and the top-up arrives at the same time.

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In other words, the top-up covers 20% of up to £2,500 of childcare per child in each three-month period, which is roughly £833 a month. Anything above that is paid at full price.

How the £500 cap plays out on a real bill

The cap is £500 per child in each entitlement period. Those periods last three months and start from the date you were approved, not from the start of a calendar quarter. With a £1,000 monthly nursery bill, the first two months are simple: pay in £800, and the government adds £200. By month three only £100 of top-up is left, so you pay in £400 to collect it and cover the other £500 at full price, either straight to the nursery or through the account without a top-up.

There is no limit on how much you can pay in, and money in the account stays there until you use it. Unused top-up allowance does not roll into the next period, though. If a period is quieter than usual, say over a summer when your child is away more, paying in towards fees you know are coming is a sensible way to use the allowance before it resets. Deposits and advance payments to your provider are allowed.

Who qualifies in 2026/27

You can usually get Tax-Free Childcare if all of these apply:

• You, and your partner if you have one, are working, either employed or self-employed. Sick leave, annual leave, and maternity, paternity, shared parental or adoption leave all count.
• You each expect to earn at least the equivalent of 16 hours a week at the minimum wage for your age over the next three months (the figures are just below).
• Neither of you expects adjusted net income over £100,000 in the current tax year.
• Your child usually lives with you and is 11 or under. Eligibility runs until the September after their 11th birthday, or the September after they turn 16 if they are disabled.
• You have a National Insurance number and are a British or Irish citizen, have settled or pre-settled status, or have permission to access public funds.
• You are not getting Universal Credit or childcare vouchers at the same time.

The minimum each of you needs to expect to earn over the next three months, before tax, in 2026/27:

• 21 or over: £2,643.68, which is £203.36 a week.
• 18 to 20: £2,256.80, which is £173.60 a week.
• Under 18 or an apprentice: £1,664, which is £128 a week.

If one partner is not working but gets Carer’s Allowance (or Carer Support Payment in Scotland), contribution-based Employment and Support Allowance, Incapacity Benefit, Severe Disablement Allowance or National Insurance credits, the family can still qualify as long as the other partner works.

Newly self-employed? If your business started less than 12 months ago, there is no minimum earnings test. If your income comes in irregularly, you can use the average you expect over the tax year instead. Dividends, savings interest, property income and pension income do not count towards the minimum.

The £100,000 limit

The upper limit applies to each parent separately, not to your combined income, so two parents on £90,000 each can still qualify. It is based on adjusted net income: your taxable income after certain reliefs, such as pension contributions and Gift Aid donations, are taken off. If you are close to the line, HMRC’s adjusted net income guide shows exactly how the figure is worked out. Going over it by a pound means you cannot get Tax-Free Childcare, and in England you lose the 30 funded hours for working parents too.

What you can use it for

The account can only pay approved, registered childcare that has signed up to the scheme, including:

• Nurseries, registered childminders and registered nannies.
• Breakfast clubs, after-school clubs and holiday clubs.
• Childcare run by a registered school, and home care workers from a registered agency.
• Extras your provider supplies, such as meals, nappies and trips, plus deposits, retainers and advance payments.

It cannot be used for the school day itself, so school lunches, uniforms, trips during school hours and private lessons in school time are all out. A grandparent can be paid only if they are a registered childcare provider and look after your child somewhere other than your child’s home.

Setting up the account, step by step

1. Check your provider is signed up. Ask them directly: they have to be registered with the scheme before you can add them.
2. Gather the details: your National Insurance number and your partner’s, your Unique Taxpayer Reference if you are self-employed, your child’s UK birth certificate reference number if they have one, and the date you started work or will start.
3. Apply online through GOV.UK. It usually takes about 20 minutes. In England, the same application also checks whether you can get Free Childcare for Working Parents.
4. Wait for the decision. Usually you find out straight away; extra checks can take up to 10 days, and occasionally longer.
5. Add your provider in the account, then pay in by bank transfer, standing order or Direct Debit. A standing order set for a few days after payday keeps it painless.
6. Pay your provider from the account.
7. Reconfirm your details every three months, as explained below.

Once the account is open, the same sign-in handles everything else: paying in, paying your provider, reconfirming and applying for another child.

Reconfirming every three months

Each entitlement period lasts three months. You can reconfirm during the last 28 days of it, and you will get reminders four weeks and two weeks before it is due. Reconfirm at least seven days before the period ends to avoid a gap.

Miss the deadline and new top-ups stop. You can still reconfirm afterwards, but top-ups only restart once HMRC accepts it, which can take up to seven days, and anything you pay in before then is not topped up. Money already in the account is not lost: you can still use it to pay your provider.

Using it with free childcare hours

Tax-Free Childcare works alongside funded hours rather than instead of them. In England, working parents of children aged 9 months to 4 years can get 30 funded hours a week for 38 weeks of the year through Free Childcare for Working Parents; our 30 hours free childcare guide has the deadlines and the earnings test. You apply for both through the same childcare account: the funded hours come with an 11-digit code to give your provider, and the top-up covers what you pay for everything else.

Your nursery takes the funded hours off first. You then pay the rest of the invoice, including extra hours, meals and consumables, through the account. Scotland, Wales and Northern Ireland run their own funded childcare schemes, but Tax-Free Childcare works the same way across the UK. Our guide to UK childcare costs compares funded hours in each nation and shows how to read a nursery invoice.

Tax-Free Childcare or Universal Credit?

You cannot get both at once, and the difference can be large. Universal Credit can cover up to 85% of registered childcare costs, but it is means-tested and paid as part of your overall award. Tax-Free Childcare covers 20%, whatever else you earn under the £100,000 limit.

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Because 85% is so much more than 20%, families with a meaningful Universal Credit award often come out ahead there, but it depends on your whole claim. Run the numbers in the government’s childcare calculator before switching. If you do move to Tax-Free Childcare, wait for the decision before cancelling your Universal Credit claim. Still getting childcare vouchers through work? Tell your employer within 90 days of applying so they can stop them.

Applying while you are on maternity or parental leave

You can usually get Tax-Free Childcare while on maternity, paternity, shared parental or adoption leave, as long as you expect to meet the earnings test when you go back. When you can apply depends on your return date:

• Returning to work between 1 May and 30 September: apply from 1 April.
• Returning between 1 October and 31 January: apply from 1 September.
• Returning between 1 February and 30 April: apply from 1 January.

Working out what you will be paid in the meantime? Our statutory maternity pay guide has the 2026/27 rates, salary examples and the dates to tell your employer.

Starting a new childcare arrangement at the same time? Our back-up childcare guide covers what to line up for sick days and closures, and the nursery settling guide helps with the first few drop-offs.

Common snags and how to avoid them

• Your provider does not appear in the account. They must sign up to the scheme first. You can send them a nudge from your account or ask them to register.
• You and your partner both applied. Only one of you can hold the account for each child. Separated parents who share responsibility should agree who applies; if you both do, HMRC decides.
• You want money back out. You can withdraw, but the government’s share goes back to HMRC: empty an account holding £1,000 and you receive £800.
• Your child ages out, or you stop using the account. It is closed one year after your child stops qualifying, or two years after your last reconfirmed period. Your share of any balance comes back to you; the top-up share returns to HMRC.
• HMRC asks for proof of earnings. Company directors and people paid irregularly may need payslips, bank statements, invoices or an accountant’s letter, both when applying and when reconfirming.

Quick questions about Tax-Free Childcare

Is Tax-Free Childcare the same as 30 free hours?

No. Funded hours are childcare time paid for by the government; Tax-Free Childcare is a 20% top-up on what you pay. In England you apply for both through the same childcare account, and many families use both at once.

Does Tax-Free Childcare affect Child Benefit?

No. Using Tax-Free Childcare has no effect on Child Benefit.

Can I use Tax-Free Childcare for holiday clubs?

Yes, if the holiday club is registered and signed up to the scheme. Ask the club before you book.

Can I pay a grandparent with Tax-Free Childcare?

Only if they are a registered childcare provider and look after your child somewhere other than your child’s home.

How quickly does the government top-up arrive?

Your payment and the top-up usually appear in the account within one working day of the money leaving your bank.

Is there a minimum amount I have to pay in?

No. There is no minimum deposit, and no maximum either. Only the top-up is capped, at £500 per child every three months, or £1,000 for a disabled child.