Tax-Free Childcare continues to be used by less than half the families eligible  

According to the latest data, 512,415 families used Tax-Free Childcare in the last tax year, up from 374,135 the year prior, however this is less than half of the number of families eligible. Recent HMRC research estimated that 1.3 million families could be eligible for the scheme.

As previously reported by Nursery World, the low take-up of the scheme has resulted in an underspend of billions of pounds and is despite numerous attempts by the Government to promote Tax-Free Childcare.

The scheme, which allows working parents to claim back £2,000 a year on childcare costs, is open to families where parents each earn a minimum of the equivalent of 16 hours a week at the national minimum wage and less than £100,000 a year.

Myrtle Lloyd, HMRC’s director general for customer services, said, ‘Tax-Free Childcare can make a big difference to families, helping with the bills for things like nurseries, childminders and after school clubs. It’s easy to register – search ‘Tax-Free Childcare’ on GOV.UK.’

Helen Whately, secretary to the Treasury, said, ‘It’s fantastic that more parents are taking up Tax-Free Childcare. This support provides a helping hand with childcare costs for working families.

‘With over one million families eligible, I want to encourage parents to take advantage of Tax-Free Childcare and keep the extra pounds in their pocket.’

The Early Years Alliance argued that the underspend from Tax-Free Childcare would be better spent increasing funding for the early years entitlements.

Neil Leitch, chief executive of the Early Years Alliance, said, ‘Although today’s figures show an increase in the number of families using the tax-free childcare scheme, the fact remains that the scheme continues to be used by less than half of eligible families.  

‘At a time when so many early years providers are struggling to remain financially viable, surely much of the money the Government continues to plough into this struggling policy would be better spent increasing funding for the early entitlement offers, something our own research has shown would be the most effective way to drive down the cost of early education and childcare. 

‘What’s more, we have long warned that Tax-Free Childcare is a regressive policy, with parents with more disposable income receiving more financial support than those with less. Given that we are in the midst of a cost-of-living crisis, we urge the Government to start focusing on investing in policies that will actually benefit those families that need the most support.’

The National Day Nurseries Association (NDNA) said the 'system needed simplifying.'

Director of policy and communication Jonathan Broadbery, said, 'We have heard from both parents and providers that the system is too complex. As families and nurseries face spiralling costs, the Government must look at simplifying the system so more providers can offer it and more children can benefit. For years, NDNA has been urging governments to streamline all childcare support into a single, online account or “childcare passport” for each child which parents can use to pay providers directly. This would also remove the need for local authorities to distribute funding, eliminating further underspends totalling £115m over the last three years.

'One major reason that take-up is much higher in England than in Wales and Scotland is that all families accessing funded childcare must create a Tax-Free Childcare account. We would encourage governments in Wales and Scotland to look at ways of joining up childcare support and increasing take-up in a similar way we have seen in England.'