What is Tax-Free Childcare (TFC) and funded hours?
Tax-Free Childcare (TFC) is a UK-wide policy that was rolled out between April 2017 and February 2018. The offer comprises 20% support towards qualifying childcare costs, up to an annual limit of £2,000 per child, or £4,000 for children with a disability. To be eligible for TFC, children must be under the age of 12 (or 17 if they have a disability), both parents (where applicable) must be in paid work or self-employed, and each must earn between the equivalent of 16 hours per week at the National Minimum Wage and £100,000 per year.
Throughout the report, the term ‘funded hours’ encompasses the following offers:
- England: 15 hours free childcare for 38 weeks of the year for all three- and four-year olds; and 30 hours free childcare for 38 weeks of the year for working families of three- and four-year olds.
- Northern Ireland: 12.5 hours free childcare for 38 weeks of the year for all three- and four-year olds.
- Scotland: 16 hours free childcare for 38 weeks of the year for all three- and four-year olds. Extending this to 30 hours for 38 weeks of the year was being trialled at the time of fieldwork.
- Wales: 10 hours free childcare for 48 weeks of the year for all three- and four-year olds. Extending this to 30 hours for 48 weeks of the year was being trialled at the time of fieldwork.
What did we do?
HMRC commissioned Ipsos MORI to conduct research to understand the perceived impact of Tax-Free Childcare on parents and providers, and how this interacted with the funded hours policies. Between September 2018 and January 2019, Ipsos MORI conducted 60 in-depth interviews with parents and 40 with providers to understand their perceptions of how the policy had impacted on their working decisions, childcare choices, and finances. The research primarily sought to understand the experiences of parents and providers in receipt of TFC, therefore parents who only used TFC were prioritised over those using both TFC and funded hours.
What did we find?
Childcare was parents’ largest, single outlay across the interviews, or second only to their housing costs. Consequently, parents were grateful of the support from government to help pay for their childcare. Parents who used both TFC and the funded hours policies did not think of them as separate entities and saw them instead as a complementary package of government support.
Parents’ perceptions of TFC and funded hours
- Parents were very positive about TFC, but wished they had discovered it sooner.
- Decisions around work were complex and unique to each family, though common across all was the need to balance work, childcare and affordability.
- Availability, quality and flexibility were the most important factors in choosing a childcare provider.
- Providers’ perceptions of TFC and funded hours
Providers had a good understanding of TFC, speaking positively about the information they received from HMRC, local authorities and the Childcare Choices website. Signing up to TFC was a straightforward process. Most providers were operating at full capacity, meaning their ability to see impact on demand as a result of TFC or funded hours was limited. Fee changes tended to be driven by staffing costs, equipment costs, overheads and reviewing local competition with TFC having minimal impact on providers’ fee structures. However, a number of providers, generally those with a greater reliance on funded hours, were concerned with the rate they received for the funded hours they offered, particularly where the difference between this rate and the rate they needed to cover their costs differed.
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