Research commissioned by HMRC has suggested that low take-up of the Tax-Free Childcare (TFC) scheme is linked to a ‘poor understanding’ of the initiative.
Under the TFC scheme, relief is 20% of the costs of childcare, up to total childcare costs of £10,000 per child per year. The scheme is therefore worth a maximum of £2,000 per child (£4,000 for a disabled child). All children under 12 (up to 17 for children with disabilities) are eligible.
To qualify for Tax-Free Childcare all parents in the household must generally meet a minimum income level, based on working 16 hours a week (on average £131 a week) and each earn less than £100,000 a year and not already be receiving support through Tax Credits or Universal Credit.
According to the research, 1.3 million UK families are eligible for the TFC scheme. The study found that many families were unaware of the initiative, and others who were aware of TFC had poor understanding of its key aspects.
The research also revealed that a small number of families set up a TFC account, but failed to make use of it. 21% of these families said that they decided not to use their account after they had set it up, and an additional 21% stated that they set up an account in advance of being required to make a payment.
Meanwhile, a handful of taxpayers believe other schemes are more suitable for their needs, and a small number prefer to use childcare vouchers, which are believed to provide additional benefits.
More information on TFC can be found here.