Alexandra Loydon, Group Advice Director at St. James’s Place, outlines what parents need to know about Government’s expanded 30-hours funded childcare scheme, the application process, and how higher-earning families—who may not qualify for the support—can take proactive financial steps to potentially reduce their taxable income and access childcare savings.
Alexandra Loydon, Group Advice Director at St. James’s Place, says:
“As the Government prepares to roll out 30 hours of funded childcare per week from September, eligible parents have just a few days –until Sunday, August 31st – to apply if they want funding in place for the start of the 2025/26 school year. With the scheme estimated to save families an average of £7,500 a year, acting quickly is essential to avoid missing out on this substantial discount.
“The application process, via the gov.uk website, is straightforward but does require certain details including your national insurance number, your unique taxpayer reference (if self-employed), the birth certificate reference number (if you have one) of any children you’re applying for, and the day you started or are due to start work. Having these ready will help you complete the process swiftly and avoid any unnecessary delays. Once approved, you’ll receive a code from the Government confirming your eligibility, which you then pass on to your childcare provider. For parents already receiving the Government’s 15 hours of free childcare, there’s no need to start from scratch, but you will need to reconfirm your eligibility by logging into your childcare account.
“While this funding is designed to support working families, it is only available to parents who meet the criteria. Applicants must be based in England, have children aged between nine months and four years and earn at least the equivalent of the National Minimum or Living Wage for 16 hours a week on average.
Information for higher earners managing childcare costs
“The funding is also means-tested at the upper end. Families where one or both parents earn £100,000 or more are not eligible for the free hours. This is just one of the childcare benefits missed out on by people in this income bracket, with those earning above this threshold also not eligible for tax-free childcare, where the Government adds £2 for every £8 spent on approved childcare. In addition, child benefit (worth £1,354.60 a year for the first child and £897 for each additional child) starts to be reduced via the High-Income Child Benefit Charge when one parent earns more than £60,000 and is lost entirely once earnings reach £80,000.
“With the total cost of raising a child said to be the highest it’s been since calculations started in 20122, families with salaries just above the eligibility criteria may want to explore strategies to reduce their taxable income and make childcare more affordable. This could include maximising pension contributions, using salary sacrifice schemes, or taking advantage of other tax-efficient allowances. For those who are able, speaking to a financial adviser can help you understand the options available and tailor a plan to your individual circumstances.”
Alexandra Loydon outlines potential options to help higher earners manage their taxable income and qualify for funded childcare:
Contribute to your pension: “One of the quickest and simplest ways to bring your taxable income below the threshold is to pay more into your pension before tax year-end. This has the added benefit of boosting your retirement fund at the same time. The tax benefits of making pension contributions are limited by the annual pension allowance. The current standard annual allowance is £60,000 but it can be lower for high earners. It is, however, possible to ‘carry forward’ any unused allowances from the three previous tax year. Tax relief on personal contributions is also limited to a maximum of 100% of earnings in the tax year that you make the contributions.
Salary sacrifice: “Through salary sacrifice, you can give up part of your salary, and possibly some of your bonus, which your employer then pays as a contribution into your pension. This results in a lower take-home pay on paper and also brings benefits through national insurance savings.
Making charitable donations: “Making charitable donations under Gift Aid is also a helpful way to reduce your taxable income, providing you keep a record and list any eligible donations on your tax return form. Higher-rate taxpayers can claim the difference between the basic rate already claimed by the charity and their higher tax rate, which can further reduce your adjusted net income.”
