Although more families are taking advantage of tax-free childcare, thousands of parents continue to be left out

Approximately 50% of Tax-Free Childcare accounts are not utilized, and many families who qualify have not even created an account

Might you be losing out on thousands of pounds in assistance?

Many eligible families are still not fully utilizing government-backed Tax-Free Childcare accounts, despite the fact that more and more parents are contributing money to these accounts to help with childcare expenses.

To replace childcare vouchers, the government introduced Tax-Free Childcare accounts in 2017.

To assist with childcare expenses, such as child care, nursery fees, after-school programs, and summer activity camps, parents can receive up to £2,000 in cash from the government annually.

According to the most recent HMRC data, 826,000 families and 1,085,000 children used Tax-Free Childcare during the 202425 fiscal year.

In the previous year, there were 740,000 families with 966,000 children.

Because of the greater availability of funded childcare, the government spent 55.3 million on the program in March, which was 7 million less than its peak level of 62.3 million in July 2024.

After their child turns nine months old, parents are now entitled to 15 hours of free childcare per week, thanks to government reforms.

Although more families are paying for childcare expenses overall through Tax-Free Childcare, the monthly percentage of accounts used has been declining.

The percentage of accounts used decreased from 54.8% in October 2023 to 51.5% in February 2024 and then to 49.2% in March 2025.

This underutilization, according to Rachael Griffin, tax and financial planning specialist at wealth manager Quilter, indicates that many familiesincluding those with children who would significantly benefit from such supportare not making the most of the available funds.

She also notes that some parents who qualify for Tax Credits or Universal Credit may open accounts, but they discover that the childcare components of these benefits allow them to save more money.

She remarks, "The amount of money available from government has remained the same since 2017 despite childcare costs spiraling during that time."

"Every small step counts, but some parents will unavoidably be turned off by the current, unduly complicated system.

Too few families are gaining from tax-free childcare. There are still eligible families who haven't even opened an account, and many of the people who have opened accounts aren't using them. The government must take further action to improve its advertising and boost funding to make it more functional.

An estimated 800,000 eligible families are thought to be losing out on the program.

Why are accounts for tax-free childcare being created but not utilized?

According to HMRC, only roughly half of Tax-Free Childcare accounts are used each month.

The reason for this could be that some families create an account for a child only to use it later or use one that has already been created for a sibling.

According to HMRC, many families discover they are also eligible for Tax-Free Childcare and an account is opened for them, which they may not use, because the government-funded 15 or 30 hour childcare and Tax-Free Childcare have a joint application process.

Additionally, it states that instead of being used monthly, Tax-Free Childcare accounts may be used once per school term or every quarter. At the beginning of a school term, for instance, a family may pay for breakfast club and/or after-school club for the entire duration.

Although government campaigns and media coverage have increased awareness of Tax-Free Childcare, Laura Suter, director of personal finance at the investment platform AJ Bell, says that usage of the program is below what the Office for Budget Responsibility (OBR) had anticipated when it first launched.

When the policy was introduced, the OBR estimated that the government would spend £1 billion annually. "That's a far cry from that amount," she says.

"Over the first five years the accounts were in use, the government actually spent just over £1 billion, rather than the £4 billion the OBR had predicted.

The operation of tax-free childcare accounts.

In order to assist parents in paying for childcare services for children under the age of eleven (or sixteen if they are disabled), TFC accounts were introduced in 2017.

HMRC reports that 75,000 childcare facilities, including nurseries, registered childminders, holiday activity clubs, and before and after school clubs, now accept Tax-Free Childcare as payment. This includes when school resumes in September.

The money isn't deducted from your paycheck as a form of salary sacrifice like its predecessor, the childcare voucher, so it can't be used to lower your taxes.

Rather, parents must create a TFC account for each child with HMRC.

The government will make two contributions for every eight once the account is open.

The government will give you 200 if you pay in 800, up to a 2,000 annual top-up limit. For parents of a disabled child, the annual top-up limit is £4,000.

Payments that are not used can be taken out whenever you want.

To be eligible for TFC, parents must be working 16 hours a week or more and making the minimum wage; however, there is a £100,000 salary cap.

As each parent is affected, they will not be eligible for TFC if one makes £100,000 while the other is unemployed. Nonetheless, the program would cover a couple making £90,000 apiece.

To continue receiving the government top-up, account holders must verify their information is current every three months.

"A lot of parents miss out on the invaluable support because they don't know about the scheme, don't understand how it works, or don't realize they are eligible," Suter continues.

Families should check their eligibility and sign up if they are, according to HMRC. Previously, the program was criticized for not being widely accessible to childcare providers. Certain providers might accept the previous childcare vouchers, for instance, but not TFC payments.

This is starting to change, though, as more daycare centers and activity clubs are beginning to accept TFC. You should ask even if they don't advertise accepting payments in this manner.

The chief customer officer for HMRC, Myrtle Lloyd, remarks: "There are a ton of childcare facilities that accept Tax-Free Childcare, regardless of your child's interests in dance, football, climbing, or crafting.

"As their parents reduce their childcare expenses, kids can enjoy themselves with their friends and learn something new. Go to GOV. UK to enrol.