Official Statistics

Tax-Free Childcare Statistics Commentary September 2023

Published 29 November 2023

1. About this release

This is a quarterly publication of Tax-Free Childcare statistics. Tax-Free Childcare provides help with childcare costs for working parents.

For every £8 a parent pays into their Tax-Free Childcare account the government will add an extra £2, up to a maximum of £2,000 per child per year. For disabled children the maximum is £4,000 per year.

Tax-Free Childcare is replacing the childcare voucher and directly contracted childcare schemes, which closed to new entrants in October 2018.

For more information about Tax-Free Childcare see the summary information in Annex 1 or guidance on Tax-Free Childcare on GOV.UK.

Publication information

This is an official statistics publication. Statistical tables to accompany this commentary are available in the accompanying spreadsheet

Coverage: United Kingdom

Frequency of release: Quarterly

Next Release: February 2024

For queries or feedback on this publication, please contact:

• TFC.statistics.enquiries@hmrc.gov.uk

For press queries, please contact:

• Media contact: HMRC Press Office - news.desk@hmrc.gov.uk

2. Summary

The key points from this release covering the period to 30 September 2023 are:

• approximately 456,000 families used Tax-Free Childcare for 547,000 children in September 2023, compared to 470,000 families using Tax-Free Childcare for 569,000 children in June 2023
• account usage decreased in August, with 421,000 families using Tax-Free Childcare for 493,000 children, due to the school summer holidays
• fewer families used a Tax-Free Childcare account in September 2023, compared to June 2023. This is thought to be due to the final day of the month landing on a weekend. Payments are not recorded at the weekend meaning that those payments made on the final day of September appear in October data rather than September data
• this does not change the underlying trend of a gradual increase in number of users of Tax-Free Childcare. HMRC receipts statistics show a rise in Tax-Free Childcare expenditure for October
• the government spent £48.7 million on top-up for families in September 2023, £4.3 million higher than in September 2022

3. Families and children using Tax-Free Childcare

Both the number of families and children using Tax-Free Childcare and the top-up value, decreased this quarter until August 2023 due to school summer holidays, before rising again in September 2023.

Figure 1: Families using TFC accounts and government top-up paid (£m), by month.

Figure 1 shows the number of families using Tax-Free Childcare accounts each month, and total monthly government top-up. The key points to note from figure 1 are:

• account use and government top-up remained decreased slightly between June and July 2023, before dipping further in August 2023, and increasing again in September 2023. This dip can be attributed to the school summer holidays
• during the school summer holidays, fewer children are using childcare. This is most notable among school age children but also observed for younger age groups. The average amount of top up received per child during August increases as more childcare is needed by those who use it
• account use and government top-up amounts are subject to monthly fluctuations. Fluctuations can be due to school holidays,the number of payment days in a month and the day of the week on which a month ends
• looking at long term trends, the number of families using a Tax-Free Childcare account was on an increasing trend from the launch of the service until the first COVID-19 lockdown led to a sharp decline in the period April to June 2020, following the closure of most childcare settings on 20 March 2020
• when COVID-19 restrictions eased there was a sharp rebound back to values that closely align with the pre-COVID-19 trend

4. Self-employed Users of Tax-Free Childcare

Self-employed parents are eligible for Tax-Free Childcare but were not entitled to use childcare vouchers.

Figure 2: Families with a used TFC account where at least one parent is Self-Employed, number and percentage of overall used accounts.

Figure 2 shows the number of Tax-Free Childcare users in families with at least one self-employed parent. Key points to note from figure 2 are:

• the number of Tax-Free Childcare users in families with at least one self-employed parent increased slightly in July 2023, from 62,700 to 62,800, before falling in August 2023 to 55,500, and rising again in September 2023 to 60,500
• looking at long term trends, the number of families with a self-employed parent using a Tax-Free Childcare account was on an increasing trend between April 2017 and February 2020, but this fell steeply during the first COVID-19 lockdown. The trend in account use returned to strong growth as COVID-19 restrictions eased
• there is a slow declining trend in the proportion of used accounts with a self-employed parent between April 2018 and August 2021. Since then it has stabilised at around 13%
• this decreasing trend could have been due to stronger incentives for early take up by self-employed parents compared to employed parents given that they were ineligible for childcare vouchers so, prior to Tax-Free Childcare, were less likely to have had access to support with paying for childcare

5. Disabled Children using Tax-Free Childcare

Disabled children are eligible for Tax-Free Childcare up to the age of 16 and can get up to a maximum of £4,000 top up per year. Families with a disabled child have been able to apply for Tax-Free Childcare since its launch in April 2017.

Figure 3: Disabled Children with a used TFC Account, Number and Percentage of Overall Children with Used Accounts.

Figure 3 shows the number of disabled children with a used Tax-Free Childcare account, and disabled children as a percentage of all children with used accounts. The key points to note from figure 3 are:

• account use for disabled children increased in July 2023, from 5,200 to 5,300, before dipping in August 2023 to 4,300, and increasing again in September 2023 to 4,800
• following some initial volatility between April 2017 and September 2017, the percentage of used accounts with a disabled child was relatively stable at approximately 0.6%. However, since early 2021 it has changed to follow to a generally upward trend, reaching 0.93% in July 2023, before dropping slightly to 0.88% in August and September 2023. This August dip mirrors the same period in 2022

6. Account Use by Age of Child

Looking at account use by age of child there has been some variation this quarter since June 2023.

Figure 4: Children aged 0 to 4 using TFC accounts, by month and child age.

Figure 5: Children aged 5 to 16 using TFC accounts, by month and child age.

Figure 4 shows the number of children aged 0 to 4 years using Tax-Free Childcare accounts by month and child age, while figure 5 shows the same for children aged 5 years and over.

The key points to note from figures 4 and 5 are:

• for children aged 0, account use decreased in July 2023 before rising in August and September 2023. Account use for 0-year-olds remains consistently low
• between June 2023 and August 2023, account use decreased for children aged 1, and rose again in September 2023
• account use for children aged 2 and 3 increased in July 2023, before falling in August 2023 and increasing again in September 2023
• there has been a gradual upward trend for children ages 1, 2 and 3, with variation due to month-on-month fluctuations
• after a small increase in July 2023, there was a large fall in account use for children aged 4, a 35% decrease between July and September 2023. This mirrors the drop seen in the same period last year
• account use for 4-year-olds is more seasonal than for other pre-school age groups and is based around the academic year. These children will (in the main) have moved into school at the start of the academic year at which point their childcare needs will have changed
• primary school aged children (aged 5 and above) saw small decreases in account use in July 2023, before a large drop in August 2023, and a sharp rise again in September 2023. This follows the same pattern as the same summer period in 2022
• account use for 11-year-olds has fallen this quarter, from 4,000 in June 2023 to 1,900 in September 2023. As with 4-year-olds there is seasonality in this series based around the academic year, as most of these children (not including children with a disability) are no longer eligible for Tax-Free Childcare with the new academic year
• in general, the number of children aged 5 and above with used Tax-Free Childcare accounts is substantially lower than those aged 0 to 4 years
• one likely factor is that children of school age generally have lower childcare costs and hence, parents are less incentivised to take up Tax-Free Childcare. There may also be a more permanent COVID-19 impact on this age group with parents able to use more informal childcare due to increased home working
• pre-COVID-19, one-year-olds had the highest account usage. However, post-pandemic, account use for this age group has not returned to pre-pandemic levels in the same way that account use for 2 and 3 year olds has
• the age groups with highest Tax-Free Childcare use are 1 and 2-year-olds. This is likely to be because they are not of school age and do not currently have access to the Department for Education’s 30 Hours Free Childcare offer, so have higher childcare costs

7. Percentage of Open Accounts which are used

Not all Tax-Free Childcare accounts that are opened are used. There are a number of reasons for this, including:

• some families will open an account for a child and then decide not to use it
• some families will open a Tax-Free Childcare account for one child which they go on to use, and at the same time open accounts for other children in the family which are not used
• in applying for 30 hours free childcare, many families find that they are also eligible for Tax-Free Childcare and an account is opened for them, although they may not use the account at the time
• not all Tax-Free Childcare accounts are used each month. For example, at the start of a school term, a family might make a payment for the whole period

Figure 6: Percentage of open accounts which are used, by month.

Figure 6 shows the percentage of open accounts which are used each month. The key points to note from figure 6 are:

• account use decreased from 54.0% in June 2023 to 44.9% in August 2023, before rising again in September 2023 to 50.1%. This decrease is largely due to school summer holidays
• over the longer term, the percentage of open accounts which are used has been on a generally increasing trend. There was a large decrease in April 2020 due to the COVID-19 lockdown. More recently the trend in the percentage of open accounts which are used each month has been on a slow, gradual, increasing trend

Annex 1 – Background to Tax-Free Childcare

Tax-Free Childcare was launched to the public in April 2017 with a phased roll out by age of the youngest child in a family, completed in February 2018. The full roll-out schedule is shown below.

Comparisons should not be made between months before March 2018, when roll-out was complete, and more recent months. Since roll-out was phased by age of the youngest child in a family, older children appearing in the tables may have joined Tax-Free Childcare before their apparent roll-out date.

A key factor in monthly usage is the number of working days within the month. A working day is defined as a weekday but excludes any national holidays. Further, seasonal variation also has an impact, such as lower usage during the August Summer holidays. Each of these factors causes a degree of fluctuation from month to month, but does not affect long-term trends.

Children must be aged 11 or under, or 16 and under if they have a disability, to be eligible for Tax-Free Childcare. Families with a disabled child up to the age of 16 were able to sign up for Tax-Free Childcare in April 2017.

Tax-Free Childcare Roll-out Dates by Age of youngest Child

Age	Date eligible
0 to 3 years	21 April 2017
4 years	June 2017
5 years	24 November 2017
6 to 8 years	15 January 2018
9 to 11 years	14 February 2018

Families with a Tax-Free Childcare account receive 20% top up on childcare costs up to a total of £2,000 per year per child (£4,000 for a disabled child).

Tax-Free Childcare is run by HMRC with their delivery partners National Savings & Investments. Accounts are fully online for the large majority of users. Parents pay into and make payments to childcare providers out of the same account. Parents are able to withdraw money for other purposes, but lose the government top-up on anything removed.

An individual family may register for a Tax-Free Childcare account for multiple children. Separated or Divorced parents cannot register an account separately for the same child.

In order to qualify for Tax-Free Childcare families must have all adults earning the equivalent of at least the national minimum or living wage for 16 hours per week, and don’t have income over £100,000 a year. They must not be claiming tax credits or universal credit in any form or other disqualifying benefits such as Job Seeker’s Allowance.

Since September 2017, families in England have also been able to use the government’s offer of 30 hours free weekly childcare for children aged 3 or 4. Families can access this offer provided all parents are earning at least the equivalent of the national minimum or living wage for 16 hours a week, and don’t have a taxable income over £100,000 annually.

Unlike Tax-Free Childcare, families are eligible for 30 free hours if they receive tax credits or universal credit or childcare vouchers. Applications for the two offers are linked and accessed through the same online portal on GOV.UK.

When a family applies for 30 hours free childcare and also meets the additional eligibility criteria for Tax-Free Childcare, a Tax-Free Childcare account is automatically opened, and vice versa. This leads to a discrepancy between ‘open’ and ‘used’ Tax-Free Childcare accounts which can be seen in the tables accompanying this publication.

Tax-Free Childcare is replacing the childcare voucher and directly contracted childcare schemes, which closed to new entrants in October 2018. Tax-Free Childcare is available to families where one or more parents are self-employed. This is different to the employer supported childcare schemes, which are only available from some employers.

With childcare vouchers, a basic rate taxpayer can salary sacrifice up to £55 per week, with a maximum benefit of £933 per year per parent, whilst a higher rate payer can get up to £28 a week in vouchers.

Whether a family is better off under Tax-Free Childcare or childcare vouchers will depend on their circumstances.

Following the closure of childcare vouchers, parents who change employer and new parents are no longer be able to receive childcare vouchers but may be eligible for Tax-Free Childcare. This should lead to an increase in take up of Tax-Free Childcare in the longer term, as these families look for childcare support.

Whether a family can access Tax-Free Childcare may also depend on their preferred childcare provider. Childcare providers need to be signed up to Tax-Free Childcare before a family can make payments to them.

Annex 2 – Glossary and Methodological Notes

Open account

An open Tax-Free Childcare account is one where a family has met the eligibility criteria and is within their eligibility period according to data held by HMRC on their administrative systems.

The eligibility period is the period where families receive top-up on any payments made through their account and usually lasts around 3 months. At the end of this period families are required to reconfirm their eligibility, and the period starts as new.

For the purposes of these statistics monthly open account figures in table 1 are calculated as the number of families with an open account on the last day of each calendar month. A similar calculation is done for table 2 but counting the number of children.

Annual open account figures in tables 1 and 2 are calculated as the numbers with an open account on the last day of any of the 12 months April to March.

Using this measure, families or children are likely to have open accounts in multiple months but will only be counted once in the annual figures. This means that the annual number of open accounts will not equal the sum of the 12 months in the year.

Used account

A used account is one where a payment is made from the account to a childcare provider within the month or year according to transactions data provided to HMRC by National Savings and Investments.

For table 1 this is calculated as the number of families making a payment in the period. For table 2 it is calculated as the number of children whose parents make a payment to a childcare provider on the child’s behalf.

Because families or children have used accounts in multiple months this means that the annual number of used accounts will not equal the sum of the 12 months in the year.

Identifying a child and a family

Families who register for Tax-Free Childcare are assigned a unique claim identifier within HMRC’s internal data. Children whose parents register are also given a unique identifier. It is therefore possible to link data across multiple children where they belong to the same family.

The relationship between Tax-Free Childcare and 30 hours free childcare

In September 2017 the government launched its offer of 30 free hours of childcare in England for children aged 3 and 4 (although parents were able to apply for and therefore open a 30 hours account from April 2017).

Parents apply and have their eligibility checked for 30 hours free childcare via the childcare service, the online application for Tax-Free Childcare and 30 hours free childcare. If a parent is found to be eligible, they will be given a 30 hours eligibility code.

A parent should take this code along with their national insurance number and their child’s date of birth to their chosen childcare provider. The provider will either directly, or via their local authority, use the Department for Education’s Eligibility Checking System (ECS) to confirm the validity of the code.

Once the 30 hours eligibility code has been validated via the ECS, the child will be able to take up their 30 hours place.

In applying for 30 hours free childcare, many families find that they are also eligible for Tax-Free Childcare and a Tax-Free Childcare account is also opened for them. This contributes to the discrepancy between open and used Tax-Free Childcare accounts that is seen in the data in the tables accompanying this release.

For this reason, used accounts are considered as the best measure of take up of Tax-Free Childcare.

How the figures for 30 hours free childcare in this publication differ from other sources

Department for Education publish their own data on the numbers of children benefiting from funded early education, including those in a 30 hours place. Statistics about education provision for children under 5 years of age are published by DfE on GOV.UK

Because Tax-Free Childcare statistics only publishes numbers of open 30 hours free childcare accounts where they also have an open Tax-Free Childcare account, this publication should not be used as the lead source for 30 hours free childcare data.

Additionally, HMRC’s 30 hours data only shows where an account has been opened, and is within its eligibility period and not all of these families will necessarily be making use of the 30 hours offer.

This is because the Tax-Free Childcare system allows parents to renew eligibility for a 30 hours account until the start of the term following the child’s 5th birthday - to ensure children who defer school entry are able to access 30 hours free childcare.

In some cases, this may mean that the child retains an open 30 hours account in HMRC’s data, even though they have started school and will therefore be unable to use the 30 hours offer.

Government top up and how is it calculated

For every £8 a parent pays into their Tax-Free Childcare account the government will add an extra £2, up to a maximum of £2,000 per child per year. For disabled children the maximum is £4,000 per year.

The monthly and annual top up amounts are the total top up that the government has spent in this period. Annual totals are equal to the 12 months in the year. The monthly totals also include some backdated payments to families who did not initially receive their expected top-up.

Self-employed status

Self-employed parents were not eligible for childcare vouchers but are eligible for Tax-Free Childcare. Families with a self-employed parent are defined according to a flag that exists on HMRC’s Tax-Free Childcare administrative data. This is based on details provided by parents during their application, including their unique taxpayer reference (UTR).

For monthly data, the latest record on a parent’s self-employed status is looked at the end of each calendar month. For annual data, the monthly data sets are combined so that the annual number of families with a self-employed parent and open or used account, are any families with a self-employed parent and open or used account in any of the months in the year.

This method reflects the fact that parents may change whether they are self-employed throughout the year.

Disability flag

Children with a disability are defined according to a flag that exists on HMRC’s Tax-Free Childcare administrative data. HMRC has access to Department for Work and Pensions records to confirm where disability living allowance (DLA) or personal independence payments (PIP) are received for a child, or a child has a Certificate of Visual Impairment (CVI).

For monthly data, the latest record on a child’s disabled status is looked at the end of each calendar month. For annual data, the monthly data sets are combined so that the annual number of disabled children with an open or used account, are those with an open or used account at any month in the year.

Geographical allocation

In order to allocate a family to a region parents details are linked to the postcode held on the HMRC central repository of address information. This data receives information from other HMRC tax and benefit administrative systems and from Department for Work and Pensions.

For annual data presented in table 6, a family’s latest available address record within the 12 month period is used. The sum of all regions in the tables may not equal the United Kingdom total because it has not been possible to allocate all families or children to a region. Families or children not allocated to a region are still counted within the United Kingdom total.

For monthly data presented in tables 13 and 14 postcode information is extracted soon after the end of the quarter (for the quarter January to March 2022 postcodes were extracted from administrative systems at the start of April 2022). This methodology will be followed for future time periods.

The methodology used in tables 13 and 14 is different for months prior to January 2021. Tables 13 and 14 were first published in February 2021 including outturn to December 2020. For all months between April 2017 and October 2020 the postcode information used was extracted from administrative systems in September 2020.

This means that for all months before October 2020 accounts are displayed in the regions in which families were living in September 2020, so if a family was living in a different region before September 2020 this will not be reflected in the tables.

Months November and December 2020 in tables 13 and 14 have been revised in the May 2021 publication to use postcode information extracted at the start of April 2021, this is considered to be more reliable than the information used in the February publication and improves consistency in the data series.

Calculating children’s ages

Children’s ages are calculated using the child’s date of birth which HMRC holds on its administrative Tax-Free Childcare data. Ages are calculated on the last day of each calendar month, so where a child has a birthday in a particular month, they will be assigned to the older age category.

The sum of all ages in the tables may not equal the United Kingdom total because child date of birth information is not available. Children without a calculated age are still counted within the United Kingdom total.

Revisions

No revisions have been made this publication.

A minor data issue has occurred for this quarter’s statistics release, which may have resulted in a very small number of families and children’s accounts not being included. This is currently being investigated and we expect there may be a slight revision to this quarterly data set in the next Tax-Free Childcare statistics publication, due to be released in February 2024.