Complete Guide · Updated June 2026
UK Tax-Free Childcare 2026/27: 25% Government Top-Up, £500/£1,000 Quarterly Cap, £100k Income Limit and Salary Sacrifice
Tax-Free Childcare is one of the most generous working-family benefits available in the UK — yet it is significantly under-claimed. The government adds 20p for every 80p you deposit into a childcare account: that is a 25% top-up on every pound you put in. The maximum government contribution is £500 per child per quarter (£2,000 per year), or £1,000 per quarter (£4,000 per year) for disabled children. To claim it, both parents must be working and each must earn below £100,000 adjusted net income — a threshold that catches many higher earners unawares, particularly those who receive bonuses. This guide explains exactly how the scheme works for 2026/27: the top-up mechanics, eligible childcare, the £100,000 income cliff-edge and how salary sacrifice can help you stay below it, the minimum income requirement, how the account interacts with 30 hours free childcare, and worked examples showing the real-world value for typical working families.
How the 25% Top-Up Works
Tax-Free Childcare (TFC) is a government-funded childcare subsidy delivered through a dedicated online childcare account operated by NS&I (National Savings and Investments) on behalf of HMRC. The account works as follows:
- You deposit money into the account (up to £8,000 per child per year)
- The government automatically adds a 20% top-up on every deposit (up to £2,000 per child per year)
- You pay your registered childcare provider directly from the account balance
The headline "25% top-up" figure is technically accurate but needs explanation: the government adds 20p for every 80p you deposit. That is 20p on top of 80p = a 25% increase on your own money (20 ÷ 80 = 25%). Put another way — for every £1 worth of childcare, you pay 80p and the government pays 20p. The government's own communications describe this as "for every £8 you put in, the government will put in £2" — the same mathematics from a different angle.
| You deposit | Government adds | Total in account |
|---|---|---|
| £400 per month (£1,200/quarter) | +£100/month (£300/quarter) | £500/month (£1,500/quarter) |
| £2,000 per quarter (max for standard child) | +£500/quarter (max) | £2,500/quarter |
| £4,000/quarter (max for disabled child) | +£1,000/quarter (max) | £5,000/quarter |
Annual maximums: For a standard child (under 12), the government contribution caps at £2,000 per year (£500 × 4 quarters). You deposit up to £8,000, the government adds £2,000 = £10,000 available for childcare annually. For a disabled child (under 17), the caps are £4,000 government top-up (you deposit up to £16,000 = £20,000 available).
The top-up is credited to the account within a few days of your deposit — it is automatic, not a rebate or voucher you need to claim separately. The account balance earns no interest (unlike a savings account) — it is purely a pass-through mechanism to hold and then pay childcare costs.
Who Can Claim: Eligibility Conditions
To be eligible for Tax-Free Childcare, all of the following must apply:
| Condition | Details |
|---|---|
| Working | Both parents (or the single parent) must be in paid work — employed or self-employed |
| Minimum income | Each parent must expect to earn at least NLW × 16 hrs/week on average per quarter (~£3,570/quarter in 2026/27) |
| Maximum income | Each parent must have adjusted net income below £100,000/year |
| Child age | Child must be under 12 (or under 17 if disabled) — eligibility ends 1 September after their 11th birthday |
| UK resident | Parent must be UK resident and have the right to work in the UK |
| Not on Universal Credit | Cannot use TFC and the childcare element of Universal Credit simultaneously — choose one |
| Not on childcare vouchers | Cannot use TFC alongside pre-October-2018 employer childcare voucher schemes simultaneously |
Leave periods. Parents on statutory maternity, paternity, adoption, shared parental, or sick leave are treated as meeting the minimum income requirement during the leave period. You do not lose eligibility while on statutory leave, even if pay during leave falls below the minimum income threshold.
New self-employed parents. If you became self-employed within the last 12 months, HMRC waives the minimum income requirement — recognising that new businesses may take time to reach profitability. After 12 months, the standard minimum income test applies.
The £100,000 Income Cap Explained
The £100,000 adjusted net income (ANI) threshold is the most important eligibility condition for higher earners. "Adjusted net income" is your total taxable income minus:
- Personal pension contributions paid net of basic-rate tax relief (the gross contribution)
- Gift Aid donations (the gross donation)
- Trading losses set against income
Salary sacrifice pension contributions reduce your gross pay(and therefore your ANI) — because they reduce your contractual salary before income is calculated. Standard personal pension contributions also reduce ANI, but the calculation differs.
The Cliff-Edge Problem
The £100,000 threshold is a cliff-edge — there is no taper. One pound of income above £100,000 eliminates eligibility entirely for that quarter. This creates a sharp incentive to manage income below the threshold, and a real risk for parents who receive year-end bonuses or unexpected income.
Common income components that can push above £100,000:
- Performance bonuses or commission
- Share option exercises (employment income)
- Rental income from investment properties
- Self-employment profit spikes
- Dividend income from personal company (above personal allowance taper)
- Redundancy payments above £30,000 tax-free threshold
How Income Is Assessed
Eligibility is assessed quarterly, not annually. When you reconfirm every three months, you declare your expected income for that quarter. If you expect to earn more than £100,000/4 = £25,000 in a single quarter (as a rough guide), you may be at risk. In practice, HMRC assesses on an annualised basis — quarterly earnings are projected to an annual figure. A bonus of £20,000 in one quarter, combined with a £85,000 salary in the rest of the year, could breach the threshold for that quarter.
If you inadvertently over-claim (receive top-up in a quarter when you were ineligible), HMRC will require repayment of the government top-up received for that quarter. It is always better to proactively pause your account in a quarter where income will breach £100,000.
Salary Sacrifice Interaction
Salary sacrifice — also called salary exchange — is an arrangement where you agree to reduce your contractual salary in exchange for a non-cash benefit from your employer, typically a pension contribution. Because your contractual salary is reduced, your gross earnings (and adjusted net income) fall.
Using Salary Sacrifice to Stay Below £100,000
For a parent earning £110,000, salary sacrificing £12,000 per year into a pension reduces gross pay to £98,000 — bringing ANI below £100,000 and restoring TFC eligibility. The annual value of TFC for one child is up to £2,000, so even sacrificing salary to stay below the threshold is often worthwhile, especially when combined with the restoration of the Personal Allowance taper benefit (income between £100,000 and £125,140 loses £1 of Personal Allowance for every £2 of income, making the effective marginal tax rate 60% in that band — pension contributions in this band are extraordinarily tax-efficient).
Combined benefit of sacrificing salary to £100,000 (one child, higher-rate taxpayer):
- Tax-Free Childcare top-up: up to £2,000/year
- Income tax saved at 60% effective rate on £10k income in taper band: £6,000/year
- NI saved (if applicable): up to £200/year
- Pension contribution (employer match may apply): asset growth
Salary Sacrifice Childcare Vouchers vs TFC
The older salary sacrifice childcare voucher scheme (closed to new entrants October 2018) allowed parents to sacrifice up to £243/month (basic-rate taxpayer) or £124/month (higher-rate) of salary in exchange for childcare vouchers free of income tax and NI. If your employer currently operates such a scheme and you joined before October 2018, you can continue — but you cannot simultaneously use Tax-Free Childcare.
Electric car salary sacrifice (for EV benefit-in-kind) reduces your P11D value but does not reduce ANI in the same way as a pension sacrifice — the BIK value of the car is added back to your income. Do not confuse the two when calculating whether you are below £100,000 ANI.
What Childcare Costs Are Covered
Tax-Free Childcare can be used to pay registered or approvedchildcare providers in England, Scotland, Wales and Northern Ireland. In England, providers must be registered with Ofsted (or a childminder agency approved by Ofsted). In Scotland with the Care Inspectorate, Wales with Care Inspectorate Wales, Northern Ireland with the Health and Social Care Trust.
Eligible providers and costs include:
- Nurseries and pre-schools — full and part-time sessions
- Childminders — Ofsted-registered, in their home or the child's home
- After-school clubs — registered with the relevant regulator
- Holiday clubs — registered, including during school holidays
- Nannies — must be Ofsted-registered (you can register a nanny through Ofsted directly for a fee)
- Au pairs — only if Ofsted-registered
You cannot use Tax-Free Childcare to pay:
- A relative (grandparent, aunt, sibling), even if they are a registered childminder — unless childcare takes place outside the family home
- An unregistered childminder or informal babysitter
- School fees for compulsory education (beyond the childcare element)
- Residential boarding school fees
You can check whether a specific provider is registered and eligible using the Ofsted register search tool at reports.ofsted.gov.uk, or ask your provider for their registration number. Without a valid registration number, the account will not allow payment to that provider.
Worked Examples
Example 1: Two Children Under 12, Both Parents Employed
Marcus earns £45,000 and his partner Sophie earns £38,000. They have two children aged 3 and 6. Their combined nursery and after-school club costs are £2,800/month (£33,600/year). Both are well below £100,000 ANI. They apply for TFC for both children.
Marcus and Sophie save £4,000/year — effectively free childcare funding worth £333/month. Their actual out-of-pocket childcare cost falls from £33,600 to £29,600. This is in addition to any 15 or 30 hours free childcare entitlement for their 3-year-old.
Example 2: One Parent Above £100,000 — Using Salary Sacrifice to Re-Qualify
Rachel earns £108,000 base salary. Her partner earns £55,000. They have one child aged 2. Rachel currently does not claim TFC because her income exceeds £100,000. Their nursery costs are £1,400/month.
Rachel's employer offers salary sacrifice pension contributions. She arranges to sacrifice £10,000/year into her pension, reducing her gross pay to £98,000 — below the £100,000 ANI threshold.
Rachel gains £6,000 in income tax savings (the 60% effective marginal rate between £100k and £110k), £2,000 in TFC top-up, and £10,000 of pension contributions. The combined benefit substantially exceeds the net cost of the sacrifice.
Example 3: Disabled Child — Doubled Limits
Priya and Amir have a disabled child aged 9 who attends a specialist registered care setting at a cost of £4,500/month (£54,000/year). Both parents work and earn below £100,000 each. They open a TFC account for their child, qualifying for the enhanced limits.
With childcare costs of £54,000/year, Priya and Amir cannot cover all costs from TFC (maximum £20,000 available annually from the account). However, the £4,000 government contribution still provides meaningful support, and eligibility extends until the child is 17 — far beyond the standard age-11 cut-off.
Tax-Free Childcare vs Childcare Vouchers
Childcare voucher schemes were closed to new entrants on 4 October 2018. If you were enrolled in your employer's voucher scheme before that date and have remained continuously enrolled, you can continue to use it — but you cannot switch to Tax-Free Childcare and then switch back. The choice, once made, is permanent (until you leave that employer or stop using vouchers).
| Feature | Tax-Free Childcare | Childcare Vouchers |
|---|---|---|
| Annual saving (basic rate, 1 child) | Up to £2,000 | Up to £933 (per parent) |
| Annual saving (higher rate, 1 child) | Up to £2,000 | Up to £623 (per parent) |
| Per child or per parent? | Per child (up to £2,000 per child) | Per parent (max per parent regardless of children) |
| Child age limit | Under 12 (under 17 if disabled) | Under 15 (under 16 if disabled) |
| Income cap | £100,000 ANI per parent | None (higher earners save less) |
| Self-employed eligible? | Yes | Only if employer offers scheme |
| New entrants allowed? | Yes | No (closed October 2018) |
Verdict for most families:Tax-Free Childcare offers greater value for families with more than one child, higher childcare costs, and both parents employed or self-employed. The only scenarios where vouchers may be better are: a higher-rate taxpayer couple using vouchers from two employers (combined £1,246/year), with very low childcare costs (below ~£4,000/year) and only one child. Even then, TFC's £2,000 cap usually exceeds this.
How to Apply and Reconfirm
Applying
Apply at childcarechoices.gov.uk or directly via gov.uk/tax-free-childcare. You need:
- A Government Gateway account (create one in advance — identity verification can take 1-2 weeks)
- Your National Insurance number and your partner's NI number
- Your employer's PAYE reference (if employed)
- Details of your self-employment (UTR number if self-employed)
- Your child's date of birth and, if applicable, disability details
- Your childcare provider's Ofsted registration number
Applications are usually processed within a few days. Once approved, your NS&I childcare account is opened and you can begin depositing immediately. You add your childcare provider to the account using their registration number, then make payments directly to them from the account balance.
Quarterly Reconfirmation
Every three months HMRC requires you to reconfirm that your circumstances still meet the eligibility conditions. You receive an email notification when the reconfirmation window opens (approximately two weeks before the deadline). Reconfirmation is done online via the same childcare account portal and takes only a few minutes — you simply confirm your expected income and employment status for the coming quarter.
If you miss the reconfirmation window: Your account is temporarily suspended and you cannot make deposits or receive new top-up until you reconfirm. Your existing balance remains in the account and can still be used to pay childcare. Once you reconfirm (even late), your account reactivates. However, any top-up that would have been added during the suspension period is not backdated — you lose those top-ups.
Set a recurring reminder in your calendar for the reconfirmation dates — missing them even once results in lost top-up money you cannot recover. The four quarterly windows typically fall in February, May, August and November, though exact dates vary by account opening date.