Thousands of UK families could be missing out on claiming up to £2,000 a year to help with the cost of childcare, according to HM Revenue and Customs (HMRC).
Tax-free childcare — the 20% childcare top-up — gives eligible working families up to £500 per child every three months towards the cost of holiday clubs, before and after-school clubs, childminders and nurseries, and other accredited childcare schemes.
Parents of disabled children could be entitled to claim £1,000 every three months through the scheme.
Tax-free childcare is available for children aged up to 11, or 17 if the child has a disability. For every £8 deposited into an account, families will receive an additional £2 in government top-up.
It is also available for pre-school aged children attending nurseries, childminders, or other childcare providers. Some £35m in government top-up payments was paid out to nearly 316,000 working families across the UK in September 2021 towards their childcare costs — a rise of about 90,000 families compared with the same time a year before.
To make use of the scheme, parents set up an online childcare account for their child. For every £8 paid into this account, the government pays in £2 — a top-up of 20% — to use to pay childcare providers.
Each eligible child needs their own account and accounts can be opened at any time of the year and can be used straight away.
"If parents and carers have school-aged children and use holiday clubs during school holidays, they could deposit money into their accounts throughout the year. This means they could spread the cost of childcare while also benefitting from the 20% government top-up," HMRC said.
Eligibility depends on whether parents are working, their income, their child's age and circumstances, and their immigration status.
You cannot get tax-free childcare at the same time as claiming working tax credit, child tax credit, universal credit or childcare vouchers.
“The tax-free childcare scheme is a great money saver for eligible parents, effectively offering 20% off childcare up to £2,000 a year. But a large proportion of parents are still unaware of its existence," said Myron Jobson, personal finance campaigner at Interactive Investor.
He said rising cost of living and return to office travel expenses have meant need for help with childcare costs has become acute for many parents.
“The uptake of the scheme continues to fall ... due to underpromotion of the initiative. Greater promotion of the initiative is still needed to raise awareness while encouraging even more parents to apply.”
Helen Whately, exchequer secretary to the Treasury said: “Whether it’s for holiday clubs, breakfast clubs, or childminders and nurseries, tax-free childcare is a great offer that gives working parents a helping hand with their childcare costs.
“I urge as many parents as possible to take advantage of this support.”