Tax-Free Childcare for the Self-employed

Did you know that if you are self-employed and your business is less than twelve months old, you can be eligible for up to 30 hours of tax-free childcare? That's right. If you live in England and you follow specific criteria, you can claim a childcare account. In Australia, you have child care subsidy options available as well, though the eligibility and benefits differ.

In this article, we'll cover everything you need to know about how you can claim tax-free childcare. We will also go through the scheme's eligibility criteria, the steps to apply, and some frequently asked questions that might come in handy when registering for this program. So, let's get started!

Tax-Free Childcare is a government program that offers any working families (this includes, of course, self-employed people) to receive a certain amount of money that can be put towards approved childcare costs. Typically, this will be up to 30 hours per week for 38 weeks a year (that's how long the school term lasts).

The program can be used alongside Universal Credit, childcare vouchers, and tax credits provided one person is working at least 16 hours. You can still receive it if your partner is working but you are on Severe Disablement Allowance, Incapacity Benefit, Carer's Allowance, and other schemes. But let's look at the conditions in a little more detail to understand who can apply.

The main criteria for applying to tax-free childcare is to live in England and have a child between three to four years old. You will also need to select care from an approved childcare provider (more on what makes a carer one in the sections below).

There will be further criteria depending on whether you are working, what your income is, your specific circumstances (and your child's), and your immigration status. Let's look into these conditions in some more detail. 

If you are working, you will typically get 30 hours, no matter if you are currently in work, on sick or annual leave, or on parental maternity, paternity, or adoption leave. If you are not currently working, you can still be eligible for the scheme if your partner has benefits such as Carer's Allowance, Incapacity Benefit, or Limited Capability for Work Benefits.

At the moment of applying, your income will need to be as follows (the numbers are calculated based on the national minimum wage or living wage for 16 hours a week):

• If you’re aged 23 or over: £1,976
• If you’re aged 21 or 22: £1,909
• If you’re aged 18 to 20: £1,420
• If you’re under 18 or an apprentice: £1,000

It's important to keep in mind that there are certain types of income that will not be included in your earning minimum. For example, interests, dividends, pension payments, and income from investing in property. Another critical factor is that you also won't be eligible for the tax-free scheme if your partner reaches an adjusted net income of more than £100,000 for the current tax year.

Lastly, there are some limitations depending on your immigration status. You will only be able to apply for tax-free childcare if you have a National Insurance Number (your partner will need one, too) and one of the following:

• Settled or pre-settled status (it's valid if you have also just applied and you're waiting for a decision).
• British or Irish citizenship.
• Permission to access public funds (if you're not sure whether you can do this, check your UK residency card). 

If you are deemed eligible, you will get 30 hours of free childcare per week. As we mentioned, these will last for 38 weeks of the year (or during term). 

What is an Approved Childcare Provider?

In order to get paid childcare, it will need to be provided by one of the following:

• A childminder or nanny (they must be registered with a childminder or childcare agency)
• A registered playscheme, nursery, or club (these can be school clubs or breakfast clubs, but only if they are after hours).
• A registered school
• A home care worker that is currently working for a registered agency.

A relative can provide tax-free childcare only if they are registered childminder and do the caring work outside your home. You will not be able to claim this scheme for care from, for example, an unregistered grandparent. Your partner is also not considered approved childcare.

The rules to get approved as a childcarer are different depending on where you live. In England, you can do so through Ofsted or specific childminder agencies.

Including Your Partner in the Tax-Free Childcare Scheme Application

If you are applying for tax-free childcare and you have a partner, you must include them if you are:

• In a civil partnership, married, or living together.
• Not in a civil partnership or married, but living together.

If they are a pensioner or will be absent from home for more than six months, their income and employment status won't affect your eligibility for the program.

However, if you are separated, remember that only one person can apply for tax-free childcare for the same child. So, provided you are jointly responsible for him or her, you will have to decide who of the two does it. If you cannot choose, you can both apply separately for the scheme, and HMRC will determine who gets the childcare account.

What If You Get Tax Credits, Childcare Vouchers, or Universal Credit?

Unfortunately, you cannot get tax-free childcare if you're also claiming Child Tax Credit, Working Tax Credit, childcare vouchers, or Universal Credit. If you're receiving vouchers, you will need to notify your employer within 90 days of applying for this scheme. The vouchers will then stop or be sent directly to your contracted childcarer.

If you are approved for the tax-free childcare scheme, you will be able to receive up to £500 every three months (or up to £2,000 each year) for every child you have. Disabled children are also entitled to an additional £500, making the total £1,000 for every three-month period (or a total of £4,000 a year).

The way the program works is as follows: First, you will need to set up an online account. Then, for every £8 you pay into it, the government will add £2 you can use to give to your provider.

As we mentioned, you can use tax-free childcare to pay for after-school clubs, play schemes, nurseries, nannies, and childminders. 

The tax-free childcare scheme has a very strict date range in which you can apply. It's important to follow these so you can receive your code in time (you will need this code in hand before the new term starts; typically by the end of the previous month).

You should apply from the time when your child is two years and 36 weeks old. Here are some approximate dates to use as a reference to when you should start receiving care:

• If your child turns three from 1st September to 31st December: Apply by 15th October to 30th November so you can have your code before the term starts on or after 1st January.
• If your child turns three from 1st January to 31st March: Apply by 15th January to 28th February so you can have your code before the term starts on or after 1st April.
• If your child turns three from 1st April to 31st August: Apply by 15th June to 31st July so you can have your code before the term starts on or after 1st September.

You can apply for 30 hours tax-free childcare using this link. If your application is approved, you will get a code you can then give directly to your childcare provider. 

It's relatively straightforward to claim tax-free childcare. However, you might have some other questions about the scheme and its eligibility. Below, you will find the most common questions regarding your childcare account.

If you still require some extra help, don't hesitate to contact us. GoForma offers free advice from an accountant. You can book a 20-minute call, and we'll help you through everything you need to understand about your tax queries. 

Can foster carers provide childcare?

Yes, but only if the foster parent, kinship carer, or foster carer is registered as a childcare provider. 

Do you have to reconfirm your tax-free childcare eligibility?

Yes, you will need to reconfirm you're eligible every three months. 

Can more than one person apply for the same care?

No, if someone else is claiming tax-free childcare (and has done it successfully), you will be unsuccessful in your own application. 

Can you use tax-free childcare for online education?

HMRC says you cannot use the scheme for online tuition because it is not considered to provide any element of care. 

What is Not Included and Not Included in Tax-Free Care?

Some of the things not included in the tax-free childcare scheme include meals, trips, and nappies.

What does "incapacitated" mean for childcare?

Being incapacitated differs from qualifying for disability. If one of the people in the couple is, for example, on the Personal Independence Payment program, Disability Living Allowance, Armed Forces Independence Payment, etc, they can be paid if the other person is working at least 16 hours.

When Does the Tax-Free Scheme End?

The tax-free childcare scheme will end as soon as your child reaches the last entitlement period for which he or she was found eligible.