Just 160,000 using Tax-Free Childcare as technical problems persist


About a third of the number of families initially expected to use Tax-Free childcare have done so in the last tax year, according to figures released by HMRC today.

The 160,000 families using Tax-free Childcare is well short of the expected 415,000 families the government had hoped to achieve by December 2017 at the out-set. Tax-free childcare has struggled with technical issues and was not fully rolled-out to all eligible children until March 2018, six months after its launch.

Today’s figures arrive on the back of concerns raised to the Early Years Alliance by providers who say technical glitches have made it impossible for them to tell which parents Tax-free Childcare payments had come from.

In a section titled, ‘Making Tax-Free Childcare payments will be easy’, on the government’s website, the HMRC tells providers “[Parents will] be able to send you payments directly from their Tax-Free Childcare accounts to your bank account (via BACS). Each child will have a Tax-Free Childcare reference number. Parents can let you know their reference number to help you identify their payments.”

However, according to at least one provider, the latest tranche of income received via the scheme was completely anonymised.

When contacted by the Alliance, the HMRC could not reveal how many providers had been affected and a spokesperson said: “We apologise for the inconvenience caused by this issue with payment references. We are working hard to resolve it and if parents or childcare providers have problems, they can call us on 0300 123 4097 and we will help them.”

This latest glitch will be hugely concerning to providers, some of whom receive tens of thousands of pounds of payments via the Tax-Free Childcare portal, and will leave those affected facing a significant administrative task to reconcile these anonymised payments with parents.

This is just the latest in a long line of technical issues that have dogged Tax-Free Childcare since its 2017 launch, including glitches which led to providers not being paid in November last year. Following last year’s Budget, the government revealed that poor take up of the offer had meant the policy had an underspend of £600m, money which was returned to the Treasury.

Commenting on today’s figures, the Early Years Alliance’s chief executive, Neil Leitch, said:
We warned Tax-free childcare was a regressive policy from the outset because it meant parents with more disposable income received more financial support from government than those with less. The worryingly low take up of Tax-Free childcare seems to show these fears have now been realised.

It now seems inevitable that there will be yet another underspend on this failing government policy. It’s imperative that any Tax-free Childcare surplus finds its way to the families and providers currently subsidising the £662 million shortfall in the government’s early years funding, rather than being pocketed by the Treasury – something that simply cannot happen again.

Responding to the news of a technical glitch leaving providers unsure of parent payments, Neil said:
The payments system for Tax-free childcare was perhaps a little slower than providers and parents would have liked. However, when it worked, it produced a paper-trail for providers to match up payments with parents.

This latest change to the payment system seems to have taken place without communication, consultation or testing with the sector. Given the HMRC’s track record of technical problems, this is not good enough. There’s no doubt this will have caused an additional, significant administrative burden for providers at a time when they are preparing for the new term.

Tax-Free Childcare aims to provide help with childcare costs for eligible working parents. It can be used to pay for approved childcare, such as childminders, nurseries and nannies, after school clubs and play schemes, and home care agencies.

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 can be accessed at the same time as 30 hours free childcare if parents are eligible.


A link to the new statistics report is here: https://www.gov.uk/government/statistics/tax-free-childcare-statistics-june-2019


About the Alliance

  • The Early Years Alliance is the largest and most representative early years membership organisation in England. A registered educational charity, it also provides high-quality affordable childcare and education to support children and families in areas of deprivation throughout the country.
  • The Alliance represents 14,000 member settings and supports them to deliver care and learning to more than 800,000 families every year. We deliver family learning projects, offer information and advice, produce specialist publications, run acclaimed training programmes and campaign to influence early years policy and practice.
  • The Alliance website is www.eyalliance.org.uk