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Use of Tax-Free Childcare on the up

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Written by: Emma Lunn
19/05/2021
About 282,000 families used Tax-Free Childcare for 329,000 children in March 2021, compared with 248,000 families using childcare for 287,000 children in December 2020.

This increase in Tax-Free Childcare use continues the recovery from the impact of the first coronavirus lockdown which started in March 2020. The government spent £33.3m on top-up for families in March 2021, £7.6m more than in December 2020.

Tax-Free Childcare accounts offer a 20% government top-up towards the cost of childcare for parents of under 12s. To benefit parents must set up an account via gov.uk.

For every £8 paid in by parents, a further £2 is added by the government, up to a maximum top-up of £2,000 a year. For disabled children the maximum is £4,000 per year.

You can then use the account to pay for your childcare, providing your childcare provider is registered to accept payments from the scheme. You can only pay out for childcare where the main reason for it is to enable you to work.

Myron Jobson, personal finance campaigner at Interactive Investor, said: “The closure of schools during the government enforced coronavirus lockdowns resulted in a struggle for many working parents to access childcare at a time where they needed it the most. A wail from child in the background of work-related video conferencing calls became an all too familiar and accepted by-product of the working from home phenomenon.

“The uptake of tax-free childcare initiative reflects this – decreasing in the first few months of the quarter before spiking towards March when children were allowed to return to classrooms.

“The Tax-Free Childcare scheme is a great money saver for eligible parents, effectively offering 20% off childcare so you’re not going to get it from pre-tax income. However, it continues to fall far below original estimates. Greater promotion of the initiative is still needed to raise awareness while encouraging even more parents to apply.”

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