Tax-free childcare for freelancers

Working as a freelancer is no easy feat, and when you throw children into the mix, things can get even more complicated. You may have found yourself ineligible for many government childcare schemes when you’ve applied for them in the past.

But, as of October 2018, the old childcare voucher system will no longer be open to new applications and it’s being replaced by a tax-free childcare scheme that is open to virtually everyone.

With the new system, you can manage your own childcare account online in order to receive your tax-free government top-up – perfect for busy, working parents.

Out with the old…

Until recently, employment-supported childcare – or childcare vouchers – involved money being deducted from your pre-tax income in order to pay towards nursery fees and other costs for your children such as music lessons or clubs.

However, as the name suggests, these childcare vouchers were ‘employment-supported’. That means it is entirely up you your employer if they chose to support the vouchers or not, meaning many – including self-employed parents – missed out.

…and in with the new

The new tax-free childcare scheme means eligible families will have 20% of their yearly childcare costs paid for by the government; receiving up to £2,000 per child per year. And the best part is, the new service is open to all working parents – including freelancers and contractors

In addition to this, the earnings limit does not apply if your sole trader business is less than 12 months old

If you’re a limited company director, you can still apply. Whilst you may have always had the option of setting up a voucher scheme through your business and accessing help with childcare costs that way, tackling this administrative burden yourself takes time and effort that, as both a parent and a company director, you’d rather spend elsewhere.

You would have also been responsible for hunting down a registered provider, covering commission fees, and claiming the costs against your corporation tax bill yourself or with your accountant.

The new system means sole traders are finally able to benefit from a government backed childcare scheme, whilst limited company directors can access hassle-free tax relief on their childcare costs.

How does it work?

This simple system is perfect for busy working families since you can join quickly and easily by creating an online childcare account. It takes just 20 minutes to sign up or even less if you know your Government Gateway account log-in details.

Once you’re set up, the government will pay 20p for every 80p you pay your childcare provider through your tax-free childcare online account. The scheme has a cap of £10,000 annual childcare costs for each of your children, meaning you could receive up to £2,000 per year to help towards these costs.

Am I eligible?

This new system is available to all working parents – whether single or a couple – who pay for approved childcare. You’ll be able to access up to £2,000 per year for each child you have under the age of 12, or up to £4,000 per year for children under 17 if they are disabled.

You’ll need to be over the age of 21 to be eligible and have one or more child under 12.

You must earn at least the National Minimum or Living wage (£125.28 per week if you’re over 25). If you are a couple, both parents must earn this in order to be eligible. You must also earn no more than £100,000 per year, not claim any tax credits (including childcare within working tax credits) or universal credit.

As a self-employed person, you’ll have the same criteria to follow as an employee in order to qualify for the scheme. In fact, eligibility criteria are actually less strict for the newly self-employed as you won’t need to meet the £125.28 per week limit if you’re still in your first 12 months of trading.

To receive tax-free childcare, you’ll need to either be in work or on parental leave, sick leave or annual leave.

Your childcare provider will need to be already signed up to the scheme before you can pay them, as this will need to be paid through your online account in order to benefit from the government top-up.

Do I have to switch?

If you’re already on a childcare voucher scheme through your workplace you can choose to stay in this for as long as your employer continues with it. However, you will no longer be able to sign up to the childcare voucher scheme if you are not already on it from October 2018.

Similarly, limited company directors with a childcare voucher scheme already in place can choose to keep this if they so wish.

If you are not already signed up to a childcare scheme or you would like to switch to the tax-free childcare system, you can do this online here. To find out more about the new scheme, visit the website.

Speak to the TWP team

If you’d like to know more about your childcare options as a self-employed parent, or if you’re a company director and would like our help claiming your childcare vouchers against your corporation tax, talk to us today. Please call us on 01932 704 700 or email

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