Tax Free Childcare is a government top up paid into an online childcare account: for every £8 you pay in, the government adds £2, up to £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 be working and expect to earn at least the equivalent of 16 hours a week at the minimum wage, and neither of you can expect adjusted net income over £100,000 for the tax year.

Who qualifies for Tax Free Childcare?

The scheme is set up by the Childcare Payments Act 2014. HMRC’s Tax Free Childcare manual at TFC05200 summarises the conditions in section 3: on the date you declare eligibility you must be at least 16, in the UK, responsible for the child, and you and any partner must be in paid work and earn at least the minimum income. Your adjusted net income must be within the limit, and neither you nor a partner can be claiming Universal Credit, receiving employer childcare vouchers, or getting other childcare support.

GOV.UK adds the practical points:

  • Your child is eligible until the September after they turn 11, or the September after they turn 16 if disabled (for example, receiving Disability Living Allowance or Personal Independence Payment, or certified as blind or severely sight impaired).
  • The child must usually live with you, and you cannot claim for a foster child.
  • The provider must be approved childcare and signed up to the scheme: a registered childminder, nursery, club, nanny or school, for example.
  • You and any partner need a National Insurance number and a qualifying immigration status.
  • Leave counts as work: sick leave, annual leave and statutory maternity, paternity, shared parental and adoption leave all keep you eligible.

A partner who is not working can still leave the household eligible if they get certain benefits such as Carer’s Allowance or contribution based Employment and Support Allowance.

What are the minimum income tests?

You and your partner must each expect, over the next three months, to earn at least:

Your age or status Over 3 months Weekly equivalent
21 or over £2,643.68 £203.36
18 to 20 £2,256.80 £173.60
Under 18 or apprentice £1,664 £128

These figures are 16 hours a week at the National Minimum Wage or National Living Wage. If your pay is irregular, or you are self employed and will not earn enough in the next three months, you can use an average of your expected earnings over the tax year. If your self employed business started less than 12 months ago, the minimum does not apply at all.

Only earnings count. Dividends, interest, property income and pension income are ignored. That is the main problem for company directors who pay themselves a small salary and take the rest as dividends: GOV.UK says HMRC will check PAYE records and a director may need to provide evidence such as payslips or an accountant’s statement at each reconfirmation. See our guide to salary versus dividends.

What is the £100,000 income limit?

Under regulation 15 of the Childcare Payments (Eligibility) Regulations 2015, you must not expect your adjusted net income to exceed £100,000 in the tax year in which you make your declaration (TFC11050). The test applies to each partner separately, and if either partner expects to be over the limit the household cannot claim.

Adjusted net income takes its meaning from section 58 of the Income Tax Act 2007. It is not gross pay: HMRC’s example at TFC11050 shows a parent with £115,000 of income who brings adjusted net income down to £92,500 through a £10,000 pension contribution and a £10,000 Gift Aid donation, which counts as £12,500 once grossed up.

Foreign income counts towards the limit, and the test is based on what you expect for the current tax year each time you apply or reconfirm.

How does the 20% top up actually work?

Under section 21 of the 2014 Act, HMRC tops up money you pay into the account at 25% of your payment, which means the government share is 20% of the total in the account (TFC35300). On a £250 bill, you pay in £200 and the government adds £50.

Each claim runs in three month entitlement periods (TFC20100). In each period the maximum qualifying payment is £2,000 per child, or £4,000 for a disabled child (TFC35200), so the top up is capped at £500 or £1,000. You can pay in more, but the excess does not attract a top up in that period. It stays in the account and can attract top up in the next period.

You can withdraw your own money, but under section 22 the matching top up goes back to HMRC, so you can never take out more than 80% of the balance (TFC30800). You must sign in every three months to reconfirm, or the top ups stop.

How does it interact with the High Income Child Benefit Charge?

Both rules use adjusted net income, but the thresholds and the way they treat couples are different:

Point Tax Free Childcare High Income Child Benefit Charge
Income measure Expected adjusted net income for the year Actual adjusted net income for the year
Threshold £100,000, all or nothing Starts at £60,000; 1% of Child Benefit for every £200 above; all repaid at £80,000
Couples Each partner tested; either over the limit means no claim Charge falls on the partner with the higher income

Nothing stops you getting Child Benefit and Tax Free Childcare together. A parent with adjusted net income between £80,000 and £100,000 will typically repay all Child Benefit through the charge but can still use Tax Free Childcare. Above £100,000 they lose Tax Free Childcare entirely, and the personal allowance taper also starts.

Because both measures deduct pension contributions and Gift Aid, one contribution can help with both rules at once. See our guide to pension contributions for business owners.

A worked example

Illustration only. Jo expects income of £104,000 this tax year and her partner expects £40,000. They have one child, aged 3, at a nursery that charges £3,000 a quarter.

  • As things stand, Jo’s adjusted net income is over £100,000, so the couple cannot claim.
  • Jo plans gross personal pension contributions of £5,000. Her expected adjusted net income falls to £99,000 and the couple can claim.
  • Each quarter they pay £2,000 into the childcare account and the government adds £500. The £2,500 goes to the nursery and they pay the other £500 directly. Over a year the top up is £2,000.
  • Jo’s adjusted net income is still above £80,000, so she will repay all their Child Benefit through the High Income Child Benefit Charge unless they opt out of payments.

What mistakes do people make?

  • Directors counting dividends towards the minimum income test.
  • Checking only one partner’s income against the £100,000 limit.
  • Forgetting to reconfirm every three months, which stops the top ups.
  • Withdrawing unused funds and expecting the government top up to come with it.
  • Joining without stopping childcare vouchers: you must tell your employer within 90 days of applying.
  • Overlooking a bonus or pay rise that takes expected income over £100,000 part way through the year.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.