TAX-free childcare is “notoriously misunderstood and needlessly complex”, experts have warned as many still aren’t using the scheme that can save you £2,000 per child a year.
The number of families and children using tax-free childcare (TFC) remained high in the latest quarter, but there was some fluctuation, new HMRC data published today has found.
Usage peaked at 567,000 families using TFC for 693,000 children in July 2025, while the lowest point saw 453,000 families use TFC for 535,000 children in August 2025.
Government spending on TFC top-up also saw fluctuation this quarter, ranging between £41.5 million in August 2025 and £52.9 million in July 2025.
Tax-free childcare vastly underclaimed
Laura Purkess, Personal Finance Expert at Investing Insiders, said the cash is “vastly underclaimed”.
She added: “Tax-free childcare is notoriously misunderstood and needlessly complex, and those problems have led to it being vastly underclaimed over the past few years. For one, many parents don’t really understand the significant savings available because of its confusing name, which doesn’t really sell up its value.
“Second, it’s yet another scheme where people have to apply rather than it being administered automatically, and that’s always going to be a barrier to take-up.
“Third — and this may explain the fluctuations from month to month — parents have to reconfirm their eligibility every three months, and it’s the parents’ responsibility to remember to check their account and reconfirm on time to avoid losing their funding.
“This means some months could see a drop-off as some parents will inevitably forget to do so. Ideally the scheme would be rebranded, simplified and marketed much more vigorously by the government to ensure parents aren’t missing out.”
Financial duct tape
Kate Underwood, Founder at Southampton-based Kate Underwood HR and Training, said tax-free childcare is desperately needed.
She added: “Tax-free childcare is not a perk, it is the only reason half the parents I know can afford to turn up to work at all. The numbers just prove what we already see on the ground. Parents are clinging on to work with tax-free childcare doing all the heavy lifting.
“Take that away and a lot of them are back to ‘I would love to do more hours, but nursery says absolutely not.’ From a small business view, it is maddening. We are desperate for experienced people who can do more than school hours, and we are happy to be flexible, juggle shifts, offer hybrid, all the things.
“But if every extra day they work just disappears straight to childcare, of course they stay part time. It is not a lifestyle choice, it is basic maths.
“If the government is serious about growth, it needs childcare that is simple, predictable and does not punish people for working more. Until then, tax-free childcare is not some generous scheme. It is the duct tape holding together family life and the labour market.”
Ignorance isn’t bliss
Like Purkess, Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said many don’t even know about the scheme.
He continued: “Tax-free childcare was the centre piece of Labour’s socially progressive policies, and it is a huge benefit to working families. That said, the government haven’t been shouting about this from the roof tops and many families that seek our advice do not know about it.
“Clinically, you could think that’s due to the amount it could cost if everyone eligible claimed it. That said, it’s good to see a high number of claimants still benefitting from the concession.”
Photo by Luke Jones on Unsplash
