Research backed by HMRC reveals that the tax-free childcare scheme introduced in April 2017 has failed to take-off as anticipated, with many parents unaware that they qualify or confused about access.
Introduced to replace the previous childcare vouchers which were phased out from October 2018, take up of tax-free childcare has been less than anticipated among the 1.3m families who are eligible. Tax-free childcare provides financial assistance with childcare costs and is administered by HMRC.
Part of the confusion stems from the similar but different provision for 30 hours of free childcare. Eligibility is similar, but parents receiving child tax credits, universal credit or employer supported childcare are not eligible for tax-free childcare. They can, however, take the 30 free hours childcare route.
Under tax-free childcare, parents set up an online account. For every £8 that they pay into their account the government contributes £2, up to a maximum of £2,000 a year per child under 12 years old. For disabled children up to 17 years old the threshold is £4,000 per year. Payments from parents’ accounts can be made to registered childcare providers who must be signed up to the scheme.
The research among groups of parents was carried out in 2019 but only published in February. It found several key barriers to usage of the scheme. Lack of awareness of the scheme was a key issue, coupled with a lack of understanding of the provisions. Parents were unaware who the scheme was aimed at, how it worked and how it was different to other schemes they were aware of.
Some parents did not sign up because they thought other options more appropriate and were using childcare vouchers or the 30 hours free childcare instead, believing these options were of greater financial benefit. Around 21% of those interviewed had decided not to use their account after setting it up, some had misunderstood what scheme the account was for and 42% had not logged back in after setting it up.
The outcomes appear to show that there is some way to go for the tax-free childcare scheme to break through for many eligible parents.