Tax-Free Childcare Guide for Parents
The UK-wide scheme that gives you an automatic 20% top-up on your nursery fees.
We know that understanding the UK childcare funding landscape can feel like learning a new language. Between legacy voucher schemes, government-funded hours, and Tax-Free accounts, it’s easy for parents to feel overwhelmed. At Kids Planet, we want to make accessing high-quality childcare as simple and affordable as possible.
Helpful Parent Resources
Download our comprehensive prospectus to discover our approach to early years education, or read our official Fees & Funding Pack for an in-depth breakdown of our contract structures.
The £8 for £2 Rule
Managed by HMRC, this scheme is a government initiative designed to help working parents with the cost of childcare. You can use it to pay for approved childcare, which includes all Kids Planet services. For every £8 you pay into your online account, the government automatically adds £2. This gives you up to £2,000 per child, per year (capped at £500 every three months). If your child is disabled, the maximum top-up increases to £4,000 per year.
How this 20% reduction impacts your monthly bill:
•
If your fees are £200, your saving is £40
•
If your fees are £400, your saving is £80
•
If your fees are £800, your saving is £160
Are You Eligible?
The government uses a 3-month forecasting window to check your eligibility. To open an account, you (and your partner, if you have one) must meet certain criteria:
Work & Zero Hours
You must expect to earn at least the equivalent of 16 hours a week at National Minimum/Living Wage over the next 3 months. If you are on a zero-hours contract, you can still qualify if your fluctuating earnings average out to meet this threshold across the 3-month period.
Income Ceiling
Neither parent can have an adjusted net income of over £100,000 in the current tax year. This calculation includes any worldwide income you may receive.
Maternity & Leave
You count as “working” while on sick leave or parental leave (such as maternity, paternity, or adoption leave). However, for the specific child you are currently on leave for, you can only set up the account up to 31 days before you return to work.
Age Limits & Self-Employed
Your child must be 11 or under. You can access the scheme until the September after their 11th birthday. Self-Employed? If you are newly self-employed, the minimum earning rules don’t apply for your first 12 months!
Childcare Vouchers vs. Tax-Free Childcare
The government closed the Employer Childcare Voucher scheme to new entrants in 2018. If you are still using legacy Employer Vouchers, you cannot use Tax-Free Childcare at the same time. Here is how they compare:
Feature
Legacy Vouchers
Tax-Free Childcare
How it’s applied
Per Parent (Both parents could claim if their employers offered it)
Per Child (Better for larger families)
Self-Employed?
Not eligible
Eligible
Maximum Saving
Up to £933 per parent/year
Up to £2,000 per child/year
Note: At Kids Planet, we gladly accept payments from both legacy Childcare Vouchers and the current Tax-Free Childcare accounts!
Combining with Funded Hours
Yes, you can use both! While the government funds your 15 or 30 hours, these hours do not cover the cost of consumables (meals, snacks, extra-curriculars) or extra wrap-around care. Tax-Free Childcare acts as the perfect savings bridge to pay for these remaining fees at a 20% discount.
Why you may have a balance: At Kids Planet, we stretch your 38 weeks of funding over 52 weeks to provide you with a consistent, predictable bill year-round. Because of this, you will likely have a monthly balance to pay, and Tax-Free Childcare is the most cost-effective way to pay it.
How to Pay Kids Planet using Tax-Free Childcare
Setting up the payment is easy, but you must manually send the funds from your Gov.uk account to your specific nursery. Once set up, you can manage your account online, check balances, and make your payments directly:
1
Check your eligibility and apply for an account via the government’s
Best Start in Life or Childcare Choices portal.
2
Log in and click “Pay into this account.” Add the amount of your Kids Planet invoice (minus 20%, as the government will add the rest). Check your exact invoice total on the Famly App.
3
Search for your specific Kids Planet nursery using our postcode or Ofsted URN (Unique Reference Number). Ask your nursery manager if you are unsure!
4
Send the payment. Crucial: Please provide your child’s unique reference code to the nursery so our finance team can accurately allocate the payment to your invoice! It can take up to 3 working days for the payment to clear in our system.
⚠️ The 3-Month Reconfirmation Rule
You must log in and reconfirm your details every 3 months on your GOV.UK account to keep receiving the 20% top-up. The government will send you a reminder, but we recommend setting an alarm on your phone so your payments aren’t delayed.
Note: Different childcare funding schemes exist in Scotland, Wales, and Northern Ireland.
