Copy article

Money expert warns people are missing out on tax free childcare "through lack of awareness"

ended 27. August 2025

FINANCIAL experts have warned that people are missing out on valuable tax free childcare (TFC).

This is despite new data published this morning showing tax free childcare account use remained high in April, May and June 2025, with 572,000 families using TFC for 702,000 children in June 2025.

The data revealed the government spent £57.7 million on TFC top-up in June 2025, lower than its peak level of £62.3 million in July 2024, reflecting lower spending per family using TFC. 

It says the reduced per family TFC spending coincides with 15 hours funded childcare becoming available through the Department for Education (DfE) for kids aged 9 months to 2 years in 2024.

Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said: “Tax Free Childcare is still available, yet many parents assume funded hours replace it. With free hours starting the term after a child turns nine months, some families are missing out simply through lack of awareness. 

"In reality, the two schemes work together: you can claim your free hours and still pay the balance through Tax Free Childcare to get the 20% top-up. Too many families lose out because they don’t use the system. 

"It is worth checking your adjusted income, as many tip over £100k without realising once bonuses, Restricted Stock Units or benefits are included. Open an account early and keep up with reconfirmation, otherwise you miss out on money you’re entitled to.”

Ross Lacey, Director & Independent Financial Adviser at Rayleigh-based Fairview Financial Management, said people need to beware of getting caught out.

He added: "Tax Free Childcare is a great benefit for parents. It provides up to £2000 per year, per child. However, if either parent has a net adjusted income of £100,000 of more, then they aren't eligble to claim. 

"This is a cliff-edge so even earning 1p over means not being able to claim; this includes interest on cash in the bank and dividends too, which can catch a lot of people out. It's therefore important to consider if it makes sense to channel any income above £100,000 into a pension to bring net adjusted income down. 

“This, along with restructuring savings and investments to benefit from tax wrappers like ISAs and bonds where possible, can help bring back the ability to claim this valuable benefit.”

2 responses from the Newspage community

Copy all

Copy

Editor
Philly Ponniah
Chartered Wealth Manager and Financial Coach at Philly Financial
Tax Free Childcare is still available, yet many parents assume funded hours replace it. With free hours starting the term after a child turns nine months, some families are missing out simply through lack of awareness. In reality, the two schemes work together: you can claim your free hours and still pay the balance through Tax Free Childcare to get the 20% top-up. Too many families lose out because they don’t use the system. It is worth checking your adjusted income, as many tip over £100k without realising once bonuses, Restricted Stock Units or benefits are included. Open an account early and keep up with reconfirmation, otherwise you miss out on money you’re entitled to.
Copy

Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Tax-Free Childcare is a great benefit for parents. It provides up to £2000 per year, per child. However, if either parent has a net adjusted income of £100,000 of more, then they aren't eligble to claim. This is a cliff-edge so even earning 1p over means not being able to claim; this includes interest on cash in the bank and dividends too, which can catch a lot of people out. It's therefore important to consider if it makes sense to channel any income above £100,000 into a pension to bring net adjusted income down. This, along with restructuring savings and investments to benefit from tax wrappers like ISAs and bonds where possible, can help bring back the ability to claim this valuable benefit.