One million parents missing out on free childcare handouts

A million people who are eligible for tax-free childcare are going without the “free” money, official figures published this week showed.

Just 328,000 families have signed up to the tax-free care scheme, a tax relief programme worth £2,000 a year to most parents.

But 1.3 million parents are eligible for the break, according to HM Revenue & Customs. Parents are failing to claim, despite rising bills putting pressure on incomes and full- time childcare exceeding £1,000 a month on average.

The true number of people missing out could be as high as five million, according to analysis of official figures by Interactive Investor, an investment service. The firm’s Rebecca O’Connor said parents were unwittingly denying themselves a free handout and blamed the Government for failing to promote the scheme.

“We are in a cost of living crisis and yet free money from the Government is going begging,” she said.

The scheme allows parents to put money into a dedicated childcare fund.

For each £8 they put in, the state tops it up by £2, which is equivalent to 20pc basic-rate tax relief. Parents can claim up to £500 every three months, up to a maximum of £2,000 a year, or more if the child has a disability. Parents who earn more than £100,000 a year combined, including bonuses, cannot apply.

The money can be put towards the cost of nurseries and childminders, as well as holiday clubs and sports centres. The Government said it would help 2.5 million families when it first announced the policy in 2013, saying it represented an annual tax giveaway worth £750m.

But it handed out only around £400m in the 12 months to December – around half the initial cost prediction. Ms O’Connor said poor communication was to blame.

An HMRC report in September disclosed that one in five parents did not know they met the eligibility criteria to apply, while a third said they had heard of the scheme from a friend, rather than from official leaflets or adverts. The report said more needed to be done to advertise the tax break.