Childcare can be one of the biggest outlays for a family with young children. While there is help available from the Government it also pays to be aware of the limits. Here’s what you need to know.

Caring for young children comes with a high cost, but there are ways to mitigate this.

New parents may get used to the lack of sleep and endless demands, but making peace with the cost of childcare is tough.

Bills of £1,200-£1,500 a month to care for small children are commonplace. There is Government support to help, but it is not always available and parents may need to take steps to retain their entitlement.

Child benefit

Your first port of call will be child benefit. Paid every four weeks, you’ll get £25.60 a week for your first child and £16.95 a week for any children after that, for children up to 16 years old – or under 20 years old and still in education or training. This starts when they are born.

It is worth noting that if you save this, with a growth rate of 5%, it would grow to a pot of over £75,000 by the child’s 20^thbirthday.

However, there are caveats. If you earn £60,000, you’ll have to start paying a ‘High Income Child Benefit Charge’. If your income goes above £80,000 the extra tax will cancel out what you receive in benefit.

It might still be worth claiming if one of you isn’t working because it can be a means to build up National Insurance contributions, which count towards your state pension.

Subsidised childcare

Parents may also be eligible for subsidised weekly childcare. Currently, parents who work more than 16 hours a week and each earn less than £100,000 are entitled to 30 hours funded childcare a week for children three-to-four-years-old. For children over nine months 15 free hours are available.

Note this is only available in England though. Northern Ireland, Scotland and Wales all have separate and differing schemes.

From September 2025, the full 30 hours will kick in for all parents of nine months and over. There is a calculator here to find out how much you can get: https://www.tax.service.gov.uk/childcare-calc/

Under these schemes, childcare needs to be ‘approved’ to be eligible. In practice, this is registered childminders or nannies, nurseries or childcare agencies. It does not include your child’s compulsory education or private lessons during school time (for example, private music lessons during school hours).

Equally, you can only get tax-free childcare to help pay for childcare provided by a relative (for example, a grandparent) if they’re a registered childminder and care for your child outside your home.

Managing the salary cap

However, here too, parents have a salary limit, with those earning over £100,000 excluded from the initiative.

That being said, there are legitimate ways to adjust your income so that you can still claim childcare and/or child benefit. One way is through pension contributions.

Extra contributions to a workplace or personal pension scheme will reduce your overall net income. This may bring you back down below the threshold for either childcare or child benefit.

A similar effect can be achieved through a salary sacrifice scheme. These are offered by many employers and allow you to reduce your contractual income for an equivalent employer payment to your pension.

This also saves on employee and employer National Insurance contributions, so may become more popular with employers as NI rates rise. Again, this pushes your headline income lower and may put you back below the earnings thresholds.

Charitable gifts made under gift aid are another way to reduce your taxable income. Your income is reduced by the full market value of the gift. You can contribute up to 4x what you have paid in tax in that tax year.

A final option is to equalise any income-paying assets with your spouse. Transfers between spouses are free of tax. This can also bring you below the threshold on income. It is also a useful tool for making the best possible use of tax allowances more widely.

These contributions and deductions need to be made ahead of the tax year end (5 April 2025), so it is worth starting to think about them today.

Childcare costs can be a nasty shock when parents go back to work and the support from the Government can be a valuable boost. It is worth taking steps to adjust your income to retain these benefits where possible.