How to cut the cost of childcare

Childcare is expensive, yet few people are drawing upon all the government support they are entitled to. Ruth Jackson-Kirby explains what help is available and how to get it.

Children and teachers
Tax relief will help you save on childminders
(Image credit: © Getty Images)

This week the government announced a long overdue consultation on how it can reduce childcare bills. More than a third of a couple’s salary is typically spent on childcare, according to data from the OECD, an association of developed countries. That makes Britain the second-most expensive country for childcare in the world after New Zealand.

Millions of families are struggling to balance working and childcare. Energy bills, food and the soaring price of petrol are adding mounting pressure to household budgets. With inflation at a 40-year high it makes sense to take advantage of government support that can help keep costs down.

The tax-free childcare scheme allows parents to draw upon up to £2,000 a year from the state to help pay for childcare ranging from nurseries to childminders. However, data from HMRC shows that few are claiming the tax relief: only 384,000 of the 1.3 million parents eligible for the scheme have signed up.

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How the relief works

The scheme effectively cuts 20% off the cost of childcare. Parents need to open a childcare account with HMRC and save money into it. For every 80p you put into your account, the state will add 20p, so if you pay in £800 the government will give you £200, up to an annual limit of £2,000.

You can then use that money to pay for a range of childcare from nurseries to childminders to au pairs; it also covers holidays, breakfast and after-school clubs. As long as the childminder of your choice is registered with Ofsted, which regulates schools and childcare facilities, you should be able to pay them directly from your tax-free childcare account.

Working parents can open a tax-free childcare account provided they have a child aged under 11 (or under 17 if the child is disabled) and are earning more than £152 but less than £100,000 a year. There is a quarterly cap of £500 on the money you can receive from the government with the scheme.

If you can, make sure you pay into your childcare account all year-round, even if you don’t need to pay a childcare bill that month. That way you can make the most of the government top-up every month and avoid missing out. Once your child has turned three, they may be eligible for 30 hours of free childcare every week during term time, but you can continue using your tax-free childcare account to pay for any additional care you need, and you will still receive the government bonus.

The previous voucher scheme can help

Tax-free childcare was introduced to replace the old childcare voucher system, but some may still be able to get vouchers. The childcare voucher scheme closed to new applicants in October 2018, but you can still use them if you signed up before then. They allow you to pay for childcare from your pre-tax salary.

They are suitable for higher earners as there is no cut-off, meaning you can still use them if you earn over £100,000 a year; in that case, however, you wouldn’t be able to use the tax-free childcare scheme.

Another way the government can help you with your childcare is through child benefit. Research by EntitledTo, an online benefits calculator, has found that around 575,000 families are not claiming child benefit despite being eligible for up to £1,133 a year.

Many parents are put off claiming child benefit; if you are a higher-rate taxpayer you have to repay some of what you receive. But as the cost-of-living crisis bites it may be worth a little extra paperwork (you have to repay via your tax return) in order to claim.

Child benefit is paid at a rate of £21.80 a week for your first child and £14.45 a week for every other child until they turn 17. You have to pay back 1% of your child benefit for every £100 you earn over £50,000, so if you earn £60,000 or more you pay back the full amount. Child-benefit payments can be backdated by up to three months. You can apply for child benefit at


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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings and credit cards to pensions, property and pet insurance. 

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping among many other titles both online and offline.