Tax free childcare between tax years

JoshuaFennell

I’ve been trying to find the answer to this question without success. I even phoned their helpline and the advisor was useless and gave me conflicting information. 

If I have a balance in my tax free childcare account (I pay in the same each month, but spend more in the school holidays etc) in this tax year which will be carried over to the next tax year (23/24), but in the next tax year I expect to exceed the 100k earnings limit to be eligible what happens to the balance of the account at this point?

the advisor initially said that I’d have to withdraw it (and loose the tax top up). I questioned this as I didn’t understand why you’d lose the tax relief already gained assuming it was gained in a tax year where you were eligible. He then said I could spend it as normal but sounded insure and to be honest I suspect he didn’t really know the answer. 

Anyone been in this situation? Do I need to spend what’s in the account before April or loose the tax relief?

calcotti

I’m almost certain that money accrued in your account is still available to you even though you are no eligible to make additional payments into your account but I can’t find a link confirming this. I’ll post again if I find a link.

(It is shocking that the ‘adviser’ on the helpline can’t tell you.)

calcotti

https://www.legislation.gov.uk/ukpga/2014/28/section/19

As far as I can see regulation 19 says you can only make a payment into the account during a period of entitlement. Regulation 20 deals with payments out but there is no reference to being in a period of entitlement. In other words, as I read it, the eligibility conditions restrict ability to pay in but not to pay out.

The explanatory memorandum
https://www.legislation.gov.uk/ukpga/2014/28/notes/division/6/5/6
says

Subsection (5) allows permitted payments to be made from a childcare account during an entitlement period, whether or not the account-holder has made a valid declaration of eligibility for that period. This allows an account-holder to continue to spend accumulated balances in their childcare account for qualifying purposes even when they are no longer entitled to further top-up payments because they have not reconfirmed their eligibility.

I note however that this refers to an ‘entitlement period’ which is less clear.

sheramber

• This implies the account remains open
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• https://revenuebenefits.org.uk/tax-free-childcare/guidance/how-does-tax-free-childcare-work/making-a-claim/closing-an-account/#:~:text=HMRC will close a childcare,to be a qualifying child.
  

Tax-Free Childcare: Closing an account

A claimant cannot close their tax-free childcare account during an entitlement period for which they have made a declaration.

If a claimant does not wish to continue with TFC or stops meeting the qualifying conditions, they simply do not make a re-confirmation declaration for the next entitlement period but this does not have the effect of closing their childcare account. 

HMRC will close a childcare account in the following circumstances:

• Two years have elapsed since the end of the last entitlement period for which there was a valid declaration of eligibility; or
• One year has elapsed since the end of the entitlement period during which the child ceased to be a qualifying child.

At the time a childcare account is closed, any funds left in the account will be removed in the following way:

• The top-up element of the funds left in the account at the time it is closed are repaid to HMRC
• The remainder of the funds are returned to the account holder (if the account holder has died, this part of the funds is returned to their personal representative).

LAST REVIEWED/UPDATED 1 JULY 2022

calcotti

Good find - I didn’t think to check revenuebenefits.