Tax-Free Childcare: What it is and how it works

Tax-Free Childcare is a government scheme that helps working parents with their childcare costs. For every £8 you pay into a special online account, the government adds £2 (a 20% top-up). This can give you up to £2,000 per child per year. To pay your nanny with it, your nanny must be registered with Ofsted on the voluntary register.

Tax-Free Childcare (TFC) is one of the most valuable financial support schemes available to working parents. But it can be confusing, especially when you're employing a nanny.

The rules are actually quite simple, and the benefits are significant. Here’s a clear breakdown of what you need to know to use the scheme to help pay for your nanny.

What is Tax-Free Childcare?

Think of it as a government-topped-up savings account.

• You open a secure online account for your child.
• This is a 20% top-up on the money you put in.

This top-up is limited to £500 per quarter, which adds up to a maximum of £2,000 per child per year.

If your child is disabled, the limits are higher: the top-up is £1,000 per quarter, up to a maximum of £4,000 per year.

Who is Eligible for Tax-Free Childcare?

The scheme has clear eligibility criteria. You must be working, and your child must be the right age.

1. Parent & Carer Eligibility

You (and your partner, if you have one) must:

• Be working: This includes being self-employed.‍
• Each expect to earn at least the National Minimum Wage or Living Wage for 16 hours a week. (For the 2025/26 tax year, this is about £2,539 per quarter).‍
• Each have an 'adjusted net income' of under £100,000 per year.

There are exceptions if you or your partner aren't working (e.g., you're on maternity leave or receiving certain disability benefits).

2. Child Eligibility

• Your child must be 11 years old or under and usually live with you.
• They stop being eligible on 1st September after their 11th birthday.
• If your child is disabled, they are eligible until they are 17 or under.

Who Cannot Use TFC?

You cannot use Tax-Free Childcare at the same time as:

• Universal Credit childcare
• Working Tax Credit
• Childcare Vouchers (an old scheme now closed to new applicants)

How to Use TFC to Pay Your Nanny (The Important Bit)

This is the most critical part for a nanny employer. You cannot just pay any nanny from your TFC account.

Your nanny must be an "approved childcare provider." For a nanny, this means one thing:They MUST be registered with Ofsted on the Voluntary Childcare Register (VOCR).

Read more: Everything You Need to Know About Ofsted and Nannies

If your nanny is not Ofsted-registered, you cannot pay them using your TFC account.

How Can My Nanny Get Registered?

Your nanny has to apply for this themselves (you can't do it for them). The process involves:

1. Getting an Enhanced DBS Check.
2. Completing a paediatric first-aid course.
3. Holding a basic childcare qualification (or "common core skills").
4. Having valid public liability insurance.
5. Paying the annual £103 registration fee.

Because the main financial benefit of registration goes to you (the employer), it is very common for the employer to pay for these registration costs.

How Do The Payments Work?

1. You Apply: You (the parent) apply for the scheme on the GOV.UK website.
2. You Get an Account: You'll get an online account and a reference number for your child.‍
3. Your Nanny Signs Up: Once your nanny has their Ofsted registration number, they sign up as a provider on the government's TFC system.‍
4. You Pay: You transfer your nanny's net (take-home) pay from your TFC account to their bank account.

A Major Bonus: You Can Pay Your HMRC Tax Bill with it!

This is a fantastic and little-known feature. As a nanny employer, you are responsible for paying HMRC all the tax and National Insurance (PAYE) from your nanny's gross salary.

The TFC scheme lets you add HMRC as a "childcare provider" in your account.

This means you can use your topped-up funds to pay for:

1. Your nanny's net (take-home) pay.
2. The PAYE tax and NI bill for your nanny.

This effectively gives you a 20% discount on your total employment costs, up to the £2,000 cap.

How Quinn Makes This Simple

This can feel like a lot of moving parts. You have to handle the TFC account, and you also have to run a compliant payroll for your nanny.

Our payroll service takes care of the hard part for you.We run your nanny's payroll, calculate the exact tax and NI bill (the PAYE), and provide you with a legal payslip.

Fully digital, no paperwork, no stress