Take up of the government’s tax-free childcare (TFC) scheme, intended to replace childcare vouchers, has been hampered by a lack of understanding about who is eligible and the financial benefits
HMRC estimates suggest around 1.3m families have qualifying childcare costs and are eligible to be assisted by the scheme. However, take-up so far has been lower than originally anticipated.
Under Tax Free Childcare, for every £8 that families pay into the online account, the government makes a top-up payment of £2, up to a maximum of £2,000 per child per year, for children under the age of 12.
This is increased to £4,000 per child per year, for disabled children under the age of 17. Payments from Tax Free Childcare accounts are made to registered childcare providers that must be signed-up to the scheme to receive payments from a parent’s Tax Free Childcare account.
HMRC commissioned Industrial Facts and Forecasting (IFF) research with around 500 parents to identify and explore the reasons why some eligible parents have not signed up for, or used, the scheme.
This identified four key barriers, with the first being a lack of awareness of the scheme among some parents, with some of those who were eligible unaware of it prior to participating in the research.
There was also generally poor understanding of some key aspects of the scheme, including who the scheme is aimed at, how it works and how it differs to and/or interacts with other government support, which the Industrial Facts and Forecasting research found has prevented some eligible parents from signing up.
In some cases, parents felt other schemes were more appropriate, and some eligible parents reported they had not signed up to the scheme because they were using childcare vouchers and/or 30 hours free childcare instead.
There was also the perception that the financial benefit of applying for Tax Free Childcare is too low. Some eligible parents (especially those using fewer hours childcare per week) said they had not signed up to the scheme because they felt there was not enough financial incentive to do so.
Others preferred to continue to use childcare vouchers as they felt this scheme provided more financial benefit.
The Industrial Facts and Forecasting research said it concluded These barriers had prevented most parents who took part in this study from embarking on the Tax Free Childcare customer journey, by preventing them from doing further research about it and/or starting an application.
In contrast, only a small minority of parents had encountered difficulties during the application process which meant they did not go on to sign up for the scheme.
The research also looked at why parents did not use an account, having set one up. Around one in five (21%) of those polled said they decided not to use it after setting it up and the same proportion (21%) said they had set up their account in advance of needing to make a payment.
Some parents explicitly mentioned they had set their account up by mistake. They said they had set it up because they had intended to use it for 30 hours free childcare instead. Even though most parents who had set up an account without using it had at least one child aged one or two.
A sizeable minority (42%) of parents had not logged back into their account after setting it up, which also suggests that signposting to what happens next and how it functions could be made clearer for some parents.
