Tax-free childcare: types of childcare?

Types of childcare

Tax-free childcare accounts can be used to pay for qualifying childcare which is defined as ‘any form of care or supervised activity for a child that is not provided in the course of the child’s compulsory education’. The childcare provider must be registered or approved but cannot be used to pay for childcare provided by the claimant, their partner, the child's other parent or foster carer or step-parent or anyone else with parental responsibility for the child (where relevant). 

If the childcare is provided by a different relative (grandparent; aunt or uncle; brother or sister), tax-free childcare can be used to pay those costs provided the relative is registered/approved childcare provider and the childcare takes place on the childcare provider's premises. There is some information on the GOV.UK website which provides more detail about what counts as registered or approved childcare.

What counts as childcare costs?

Tax-free childcare payments are for actual childcare but there are various situations where the childcare fees can also include other items, such as deposits, retainers (for example during holiday periods) and payments in advance. 

Payments can only be used to cover extras such as meals or trips if they form part of the childcare costs arrangements. Where the childcare is provided by the private school where the child attends, tax-free childcare can be used to pay for these costs if they related to a child under compulsory school-age or do not include any element of compulsory education or are for childcare provided out of school hours. 

Payments can only be made out of tax-free childcare accounts for childcare where one of the main reasons for the childcare is to enable you to work.

Online childcare

Our understanding is that HMRC accept online tuition can, depending on the circumstances, be a supervised activity for TFC purposes and therefore it may be possible to use that scheme to pay for online tuition.

However, the TFC rules state that payments can only be made for childcare where one of the main reasons is to enable the claimant to work. If the claimant needs to be present and supervising the child themselves during the online tuition, that may mean they are not working during those periods and HMRC may argue that enabling the claimant to work is not a main reason for the childcare. However, it will depend on the overall circumstances of each individual case as to whether the work test is met.

There are some examples of this ‘main reason’ test in the Tax-free childcare manual on the GOV.UK website.