Self-employed tax-free childcare – how to apply

Did you know that you may be eligible for tax-free childcare as a small business owner?

While some government childcare schemes aren’t available to the self-employed, you may still be able to claim tax-free childcare. We spoke to HMRC to find out what childcare support is available to self-employed parents – keep reading to find out what help you can claim.

What childcare support is available for the self-employed?

According to experts at HMRC, self-employed parents may be eligible for:

• tax-free childcare
• free childcare hours
• Universal Credit
• tax credits
• Child Benefit

What is tax-free childcare?

Tax-free childcare is a scheme operated by the government to provide financial support for new parents with children in childcare.

Parents can receive up to £2,000 a year for each child to help with the costs of childcare (or £4,000 if your child is disabled). If you qualify, the government will pay £2 for every £8 you pay to your childcare provider. This must be done through a tax-free childcare online account.

You’ll need to confirm your details are up to date every three months to keep receiving the government top-up.

If you have more than one eligible child, you’ll need to register an account for each of them. The government top-up will be applied to deposits made for each child, rather than the full household.

You may also be able to get 30 hours’ free childcare – a scheme which has been expanded in the Spring Budget. Currently parents living in England may be able to get 30 hours a week of free childcare if their child is aged three or four.

Tax-free childcare for the self-employed – eligibility

Self-employed people are eligible for tax-free childcare just like employees. In fact, the latest statistics from HMRC show that more than 63,000 families with at least one self-employed parent benefit from tax-free childcare.

Eligibility depends on:

• whether you’re currently working
• your income (and partner’s income, if you have one)
• your child’s age and circumstances
• your immigration status

To be eligible, over the next three months you and your partner (if you have one) must each expect to earn at least:

• £2,167 if you’re aged 23 or older
• £2,117 if you’re aged 21 or 22
• £1,557 if you’re aged 18 to 20
• £1,098 if you’re younger than 18 or an apprentice

This works out as at least the national minimum wage for at least 16 hours a week, on average.

You can average your self-employment income across the year to meet the minimum income criteria, providing you aren’t also getting employment income.

Eligibility is capped at £100,000 a year for each parent.

If you’re newly self-employed (within the last 12 months) then you can earn less and still be eligible for tax-free childcare.

Additionally, your child must be 11 years old or younger, and they must live with you most of the time. You can’t claim tax-free childcare for foster children, but you can for adopted children. Children stop being eligible from 1 September following their 11th birthday.

If your child is disabled, the amount you may be entitled to increases to £4,000 a year until they are 1 September after their 16th birthday.

To qualify for this extra amount, the child must be getting Disability Living Allowance, Personal Independence Payment, Child Disability Payment (in Scotland), or Adult Disability Payment (in Scotland).

What can I use my tax-free childcare allowance for?

If you’re running your own business, there can be times when your schedule is unpredictable. Luckily, tax-free childcare is flexible, so you can use it to find a solution that works for your specific needs. You can choose from:

• childminders
• nurseries
• nannies
• before and after school clubs
• holiday clubs

To use tax-free childcare, you need to make sure the option you choose is approved and listed on Childcare Choices.

Tax-free childcare and other benefits

You can’t claim tax-free childcare at the same time as Working Tax Credit, Child Tax Credit, or Universal Credit. If you successfully apply for tax-free childcare, your Working Tax Credit or Child Tax Credit will stop immediately and you’ll be unable to apply for them again.

It can be confusing to determine which scheme you’re better off on. To help with this, you can use the government’s childcare calculator.

If you’re already claiming tax credits, you’ll receive a letter from HMRC by 19 June 2024 which may require action on your part:

• if your renewal pack has a red stripe: you’ll need to check your information and report any changes by 31 July 2024 to avoid your payments stopping
• if your renewal pack has a black stripe: you need to check your information is correct and only have to contact HMRC if you have any changes to make 

Child Benefit

You can still use tax-free childcare alongside Child Benefit. In addition to financial aid, Child Benefit means parents qualify for National Insurance credits (useful for protecting your state pension) and also means your child will automatically get a National Insurance number when they turn 16.

Child Benefit is worth:

• £25.60 a week for the oldest or only child
• £16.95 a week for additional children

It can be claimed by parents and guardians until your child turns 16 – or 20 if they stay in approved education or training.

You can check your eligibility and make a claim on the government website.

High Income Child Benefit Charge

Another thing to be aware of is the High Income Child Benefit Charge, which is when you (or your partner) have an individual income of over £60,000 and receive Child Benefit for a child living with you.

This threshold is based on individual, and not household, income. Whoever has the higher income in the household is responsible for paying the charge.

Learn more about the Child Benefit over on our benefits for self-employed people guide.

How do I apply for self-employed tax-free childcare?

You’ll need to apply online for tax-free childcare if you’re self-employed. The process takes around 20 minutes. You’ll need your National Insurance number and your Unique Taxpayer Reference, along with those of your partner if applicable.

Some eligibility applications are settled immediately, but it can take up to seven days.

More small business guides and resources

• We need more women small business owners
• A guide to self-employed maternity pay
• Empowering Women in Business initiative
• What type of business insurance do I need?

Photograph: Krakenimages.com/stock.adobe.com