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Understanding funded childcare: What is it and who is eligible?

Blog

11 July 2023

Funded childcare has become increasingly important in today’s world, where many families typically require both parents to work – meaning childcare is a must. The concept of funded childcare refers to government-funded financial support and resources that ensure accessible and affordable childcare services for families.

At Kids Planet Day Nurseries, we understand and appreciate the challenges of financing childcare and therefore, we warmly embrace funded children and actively encourage parents to utilise the allocated free funded hours, and offer both 15- and 30-hour options.

What is funded childcare?

This refers to the government initiative of providing a certain number of hours of free childcare every year to children of working parents. It is designed to ensure that children have access to high-quality care and education, while alleviating financial burdens on parents or guardians.

However, the government announced in their 2023 Spring Budget that by 2025, working parents in England will be able to access 30 hours of subsidised childcare per week, for 38 weeks of the year, from when their child is 9 months old to when they start primary school.

funded childcare nursery places

Who is eligible for funded childcare?

Under twos

At the moment, families with children under two years old are not entitled to funded childcare. However, in the 2023 Spring Budget, the government announced the following initiatives to help ease the burden:

September 2024: All eligible working parents of children aged nine months up to three-years-old will be able to access funding for 15 hours per week of education and care for 38 weeks of the year.

September 2025: All eligible working parents of children aged nine months up to three-years-old will be able to access funding for 30 hours per week of education and care for 38 weeks of the year.

Two-year-olds

Families are currently entitled to 15 hours of free childcare and education for two-year-old children if they receive certain benefits. These include but are not limited to:

  • Income Support
  • Income-based Jobseeker’s Allowance (JSA) / Employment and Support Allowance (ESA)
  • Universal Credit, as long as your household income is £15,400 a year or less after tax (not including benefit payments)
  • Guaranteed Pension Credit
  • Child Tax Credit, Working Tax Credit (or both)
  • Working Tax Credit 4-week run on (when you no longer qualify for Working Tax Credit)
  • The child gets Disability Living Allowance

However, in the new Spring Budget, the following new initiatives are due to be rolled out:

April 2024: all eligible working parents of two-year-olds will be able to access funding for 15 hours per week of education and care for 38 weeks of the year.

September 2025: all eligible working parents of children aged nine months upwards will be able to access funding for 30 hours per week of education and care for 38 weeks of the year.

Three to four-year-olds

At present, all parents are able to claim 15 hours of free childcare for children aged 3-4. This adds up to a total of 570 hours per year (depending on when the child turns 3).

For those parents who work over 16 hours per week and have an individual annual income below £100,000, they are eligible for up to 30 hours of complimentary childcare per week for their three to four-year-old children.

Those on Universal Credit are able to claim back 85% of their childcare costs. However, from September 2023, the government announced that parents on Universal Credit can request the money upfront and that the maximum amount of support jumps 50% to £951 for one child, and £1,630 for two.

Benefits of funded childcare

Funded childcare offers a huge range of benefits for both children and their families.

These programmes, which are typically subsidised by the government, contribute to the overall well-being and development of children while supporting parents’ ability to work and pursue their own goals.

One of the biggest benefits of funded childcare is that it alleviates the financial burden on families, allowing them to allocate their resources and reducing reliance on welfare programs, resulting in reduced child poverty. Funded childcare equips children with better educational opportunities, enhances their social and cognitive skills, and reduces the likelihood of intergenerational poverty.

It also helps support parents, especially women, to go back to work when the time is right. This in turn leads to increased household income, enhancing financial stability and providing opportunities for improved living standards. It also serves as a positive role model for children, demonstrating the value of education, and career aspirations.

Childcare and nursery education are pivotal to the early development of children, and the funded childcare scheme helps to make that happen for so many families who otherwise may not be able to afford it.

Tax-free childcare

If you are not eligible for funded childcare, you might be eligible for tax-free childcare.

What is tax-free childcare?

This is another government initiative introduced to help parents pay for childminders, nurseries and nannies, along with after-school clubs and play schemes.

It works in a different way to funded childcare. Parents can deposit a certain amount in an online account, and the government will top it up. For example, for every £8 you pay in, the government will top it up an extra £2.

This means that you can get up to £500 every 3 months for each of your children to help with the cost of childcare – this equates to £2,000 per year. If your child has a disability, the amount increases to £1,000 every 3 months.

Who is eligible for tax-free childcare?

The eligibility criteria for tax-free childcare depends on a number of factors, including whether you are working or not, your income, your immigration status, and your child’s age and circumstances.

You are eligible if you fall under one of these categories:

  • You are actively working
  • You are on sick leave or annual leave
  • You have shared parental, maternity, paternity or adoption leave and you’re going back to work within 31 days of the date you first applied

To be entitled to tax-free childcare, you must earn at least the national minimum wage. If you’re not currently working, you may be able to claim tax-free childcare if your partner is working and you are currently claiming certain allowances. Learn more about this here.

using tax free childcare at nursery

Benefits of tax-free childcare

Similar to funded childcare, tax-free childcare helps to support families by reducing financial burdens to a certain extent whilst encouraging the growth and development of children in nursery or childcare settings.

It helps to ensure that parents are not sacrificing their children’s care when they enter back into the workplace and leaves them financially confident that they can return to work with affordable childcare in place.

It also has a positive impact on children’s developmental milestones. By making childcare more affordable, it allows families to choose more reputable and nurturing childcare partners, such as nurseries, and reduces a parent’s reliance on potentially unsafe childcare, ensuring optimal safety, care and education for children.

Remember

  • You can pay money into your account as and when you like, as well as being able to withdraw money from the account if you want to
  • The scheme is available for children under the age of 12
  • Any eligible working family can use the Tax-Free Childcare scheme – it doesn’t rely on employers offering it. It is also available for parents who are self-employed
  • If you currently receive Employer-Supported Childcare then you can still take advantage of this initiative

Here at Kids Planet, we fully encourage parents to take advantage of the funded childcare scheme and we accept payments via the Tax-Free Childcare government scheme at all of our nurseries across the UK.

What’s more, any funded childcare places are fully entitled to our all-inclusive offering which includes unlimited access to nappies, formula and wipes for those who need them so you can rest assured that you don’t have to worry about packing a bag!

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