- 650,000 families claimed tax-free childcare in the 2022-23 tax year, a 27% increase on previous year
- On average parents are only claiming £638 per child, far short of the maximum £2,000
- OBR projections had government spend at more than £1 billion a year, rather than the £533 million it is actually spending
Laura Suter, head of personal finance at AJ Bell, comments on the latest government tax-free childcare figures:
“Families claimed an extra £122 million in government support towards their childcare costs in the most recent tax year, when compared to a year earlier. The cost-of-living crisis has pushed more families to hunt around for help with their soaring childcare costs, meaning more families are claiming tax-free childcare.
“As the high cost of childcare in the UK has become front page news, it has led to far more awareness around the help available from the government. Tax-free childcare means parents can claim up to £2,000 a year per child towards childcare costs, up until the child reaches eleven. It can be used for nursery, childminders or holiday and after-school clubs, providing a valuable financial handout to parents.
“In the 2022-23 financial year 650,000 families claimed tax-free childcare, a 27% increase on the number of families who used it the previous year. On average each family is claiming the handout for 1.3 children, meaning the benefit was claimed for a total of 836,000 children.
“However, on average parents are only claiming £638 per child, far short of the £2,000 they are entitled to. For some parents this will be because their childcare costs aren’t high enough to claim the full amount, where they are using it for occasional holiday clubs or the child only attends a few days at nursery. But for others this will be because they aren’t aware of the full amount they can claim, or they find the system too complicated and convoluted to use.
“While the uptick in use is great news, it still remains that the government is spending far less on the scheme than projected and many more families are eligible for the help but just not claiming it. The OBR projected that by now the government would be spending more than £1 billion a year on tax-free childcare, rather than the £533 million it is actually spending.
“Childcare costs will be a key battleground in next year’s election and I wouldn’t be surprised to see the tax-free childcare scheme consigned to the scrapheap in favour of a simpler, more generous scheme to help parents with childcare costs that often prevent them returning to work after having children.”
Tax-free childcare explained: Families can claim up to £2,000 a year per child towards childcare costs, split into £500 per quarter. For every £8 you pay into the account the government will add £2. Parents must be working and earning the minimum wage for 16 hours a week or more, but earning less than £100,000 per parent. More details here: https://www.gov.uk/tax-free-childcare
