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In general the costs of childcare or home help services are not tax deductible, although there has been some debate about whether they should be. 

In his 1990 Budget the then Chancellor John Major announced the introduction of a limited tax relief: from April 1990 employees would not be taxed on the benefits they received from using a nursery or playscheme provided by their employer.  This tax exemption remains in force.[1]

In its 2004 Budget the Labour Government announced a new tax relief for childcare. From April 2005, employees would be entitled to receive up to £50 a week of childcare free of income tax and National Insurance contributions (NICs) where their employers contracted with an approved childcarer or provided childcare vouchers for the purpose of paying an approved childcarer.  Employers would be entitled to a similar relief for the first £50 of this type of childcare for the purposes of both secondary Class 1 NICs and Class 1A NICs.[2]  This limit was increased by £5 to £55 from April 2006.[3]

In September 2009 the then Prime Minister, Gordon Brown, proposed that this relief for employer-provided childcare should be withdrawn to fund the extension of free childcare for two year olds.  This proved highly contentious and in December 2009 Mr Brown announced that the relief would be retained, but, from April 2011, it would be restricted in value so that all new voucher recipients would get the same amount of tax relief, to ensure that higher rate taxpayers did not benefit disproportionately.[4]  In its first Budget in June 2011 the Coalition Government confirmed that it would take this measure forward.[5]  The new income tax limit applied to higher rate and additional rate taxpayers who joined employer supported childcare schemes on or after 6 April 2011.[6]

In the 2013 Budget the Coalition Government announced it would introduce a new scheme, Tax-Free Childcare, from autumn 2015. To be eligible, families would have to have both parents in work, with each earning less than £150,000 a year, and not in receipt of support for these costs from tax credits or, when introduced, Universal Credit.[7]  Following a consultation exercise,[8] in March 2014 the Government published further details. Eligible families would be entitled to receive 20% of their yearly childcare costs, up to a maximum of £10,000 for each child: ie, support worth up to £2,000 per child each year.[9]  Initially the intention was that the scheme would be rolled out to all eligible families with children under 12 within the first year of its operation. Tax relief on employer-provided childcare would only continue to be given to existing members of employer schemes, though they would be able to move to this new scheme if they wished.

There were considerable delays in the implementation of the new scheme. In November 2017 the Government announced that all eligible parents would be able to apply by the end of March 2018.[10] Initially the Government anticipated that the existing employer-supported childcare schemes will be closed from April 2018,[11] but the month before the Government announced that schemes would be open to new entrants for a further sixth months.[12] No further extensions have been made since then, so that parents who were not already included in an employer’s voucher scheme before 4 October 2018 are recommended to register for Tax-Free Childcare.[13]

This briefing looks at the development of these limited tax reliefs for childcare costs, since the introduction of tax relief for workplace nurseries in 1990. A second Commons Library briefing provides an overview of the financial support currently available to parents and carers in England to help with the costs of formal childcare.[14] Detailed guidance on employer-supported childcare, as well as Tax-Free Childcare, is published on,[15] as well as by the Low Incomes Tax Reform Group (LITRG).[16]


[1]   Statutory provision for this relief is made by s318 of the Income Tax (Earnings and Pensions) Act 2003, as amended. For guidance see, HM Revenue & Customs (HMRC), Expenses and benefits: a tax guide (480), December 2019 – see, Appendix 11: Employer supported childcare

[2]   Budget 2004, HC 301, March 2004 para 5.26

[3]   Budget 2006, HC 968, March 2006 para 5.23.  This change was made by Order: SI 2006/882.

[4]   HC Deb 14 December 2009 c846W

[5]   Budget 2010, HC 61, June 2010 para 2.123. Provision to this effect was made by s35 of the FA 2011.

[6] HMRC, Reduced childcare relief for higher earners, 23 March 2011

[7]   HM Treasury (HMT) press notice 29/13, New scheme to bring tax-free childcare for 2.5 million working families, 19 March 2013. See also, HMT, Tax-free childcare Q&A, 19 March 2013

[8]   HMT/HMRC, Tax-free childcare – consultation on design and operation, August 2013

[9] Prime Minister’s Office press notice, Millions of parents to get help with childcare costs, 18 March 2014; Budget 2014, HC1104, March 2014 paras 1.182-3

[10] Written Statement HCWS247, 15 November 2017

[11] PQ3744, 18 July 2017

[12] HC Deb 13 March 2018 c802. For more details of this series of events see, Childcare Vouchers and Tax-Free Childcare – Frequently Asked Questions, Commons Library briefing CBP8055, 20 April 2018.

[13] Since the closure of the voucher scheme to new entrants, the issue is occasionally raised in Parliament (for example, PQ62485, 26 June 2020).

[14] Childcare: support with costs (England), CBP8054, 13 August 2021

[15], Childcare you can get help paying for, ret’d August 2021; HMRC, How can you help your employees with childcare (E18), April 2018

[16] LITRG, Employer Supported Childcare, & Who can claim vouchers?, updated 10 May 2021; and, Tax-free Childcare, updated 2 June 2021.

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