Funded hours are a big help with nursery costs, but they rarely cover everything. Many families need more hours than their entitlement, or want to pay for extras such as meals and trips. That’s where Tax-Free Childcare comes in.
Many parents don’t realise they can use both schemes at the same time. Used together, they can save you a significant amount over the year. This guide explains how they fit together, who qualifies and how to get started.
What is Tax-Free Childcare?
Tax-Free Childcare is a government top-up on what you pay for childcare. You open an online childcare account and pay money into it. For every £8 you pay in, the government adds £2, then you pay your nursery from the account.
In effect, you get 20% off your childcare bills. The top-up is worth up to £500 every three months per child, or £2,000 a year. For a disabled child, it rises to £1,000 every three months, up to £4,000 a year.
How is it different from funded hours?
The two schemes do different jobs:
| Funded hours | Tax-Free Childcare | |
| What it is | A set number of free hours each week | A 20% top-up on what you pay |
| Child’s age | 9 months until they start school | Up to the September after they turn 11 (16 if disabled) |
| What it covers | Your child’s care and education during funded hours | Extra hours, meals, nappies, trips and other extras from your provider |
| How you get it | An 11-digit code you give to your nursery | Payments from your online childcare account |
Funded hours cover the core of your child’s time at nursery. Tax-Free Childcare helps with everything on top.
How the two work together
You can claim funded hours and Tax-Free Childcare at the same time, for the same child, at the same nursery. Your funded hours are deducted from your bill first. You then use your Tax-Free Childcare account to pay the rest, such as:
- extra hours or sessions beyond your funded entitlement
- weeks outside term time, if your funded hours are spread over 38 weeks
- meals, snacks and nappies supplied by the nursery
- trips and optional activities
A worked example
These figures are for illustration only. Your own costs will depend on your child’s sessions and our current fees.
Say your monthly nursery bill comes to £400 after your funded hours are taken off. You pay £320 into your Tax-Free Childcare account. The government adds £80, and the full £400 goes to the nursery. Over a year, that’s £960 in top-ups.
You’d reach the maximum £2,000 top-up if you paid £10,000 of childcare in a year. In that case, you’d pay £8,000 and the government would pay £2,000.
Who can get Tax-Free Childcare?
The rules are very similar to those for the 30 hours, so if you qualify for one, you’ll often qualify for the other. Generally:
- You (and your partner, if you have one) must be working, employed or self-employed, or on maternity, paternity, adoption, shared parental or sick leave.
- You must each expect to earn at least £2,643.68 over the next three months if you’re 21 or over. That’s equivalent to 16 hours a week at the National Living Wage.
- Neither of you can have an adjusted net income over £100,000 a year.
- Your nursery must be registered and signed up to the Tax-Free Childcare scheme.
One important exception: you can’t get Tax-Free Childcare while you or your partner claim Universal Credit or childcare vouchers. Use the GOV.UK childcare calculator to see which gives you more. If you switch from Universal Credit, wait for a decision on your Tax-Free Childcare application before cancelling your claim.
How to set it up
- Apply through one childcare account. The same GOV.UK childcare account is used for both schemes. When you apply for 30 funded hours, HMRC also checks whether you’re eligible for Tax-Free Childcare.
- Give your funded hours code to the nursery. This makes sure your free hours come off your bill first.
- Add the nursery to your account. Ask us for our Tax-Free Childcare provider details so you can link Kiddiwinks to your account.
- Pay money in. Use Direct Debit, standing order or bank transfer. Payments usually show within one working day, with the government’s top-up added at the same time.
- Pay your bill. Send payment to the nursery from your childcare account.
- Reconfirm every three months. Sign in and confirm your details for both schemes. If you don’t, your top-ups and your funded hours code can stop.
Tip: set up a regular standing order into your account so your bill is always covered.
Frequently asked questions
Can I really use Tax-Free Childcare and funded hours together? Yes. They’re designed to work side by side. Funded hours cover your free entitlement, and Tax-Free Childcare gives you a 20% top-up on what you pay for anything extra.
Can I use Tax-Free Childcare to pay for meals and nappies? Yes. You can use it for extras such as meals, nappies and trips, as long as your nursery supplies them.
Do I need to apply separately for each scheme? No. Both are managed through the same online childcare account. Applying for the 30 hours also checks your eligibility for Tax-Free Childcare. For the universal 15 hours for 3 and 4-year-olds, just speak to your nursery.
I have more than one child. Do I need more than one account? Yes. Each eligible child needs their own Tax-Free Childcare account, and the top-up limit applies per child. You can’t move money between accounts, so pay each child’s bills from the right one.
Can family members pay into the account? Yes. Grandparents and other relatives can pay in, and their payments get the same government top-up, within the overall limit.
What happens to unused money in the account? You can withdraw it at any time, but the government will take back its share of the top-up. It’s usually best to pay in only what you need for upcoming bills.
Can I keep using it after my child starts school? Yes. Tax-Free Childcare continues until the September after your child turns 11, so you can use it for breakfast clubs, after-school clubs and holiday care.
How do I pay Kiddiwinks using Tax-Free Childcare? Ask our team for our provider details, add us to your childcare account and pay your invoice from there. We’re happy to help you get set up.
Sources (checked 12 October 2026)
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About the author
Claire Fox-Tristram is the Director of Kiddiwinks Day Nursery and has more than 25 years of experience in the early years sector. Throughout her career, she has supported hundreds of families through every stage of their child’s early years, from settling in as babies to getting ready for school. Claire is passionate about giving every child a happy, nurturing start and helping parents feel confident and well informed.
