Parents missing out on £2,000 savings boost due to 'complex' tax-free childcare rules

The latest quarterly data reveals large swings in how many families accessed the support this summer.

At its peak in July 2025, around 567,000 families claimed tax-free childcare for 693,000 children. By August, that figure had fallen to 453,000 families covering 535,000 children.

Experts say the sharp monthly movements indicate that thousands of eligible parents may be missing out on substantial help because the system is difficult to navigate.

Laura Purkess, personal finance expert at Investing Insiders, said the scheme's name alone contributes to low take-up.

"Tax-free childcare is notoriously misunderstood and needlessly complex, and those problems have led to it being vastly underclaimed over the past few years. For one, many parents don't really understand the significant savings available because of its confusing name, which doesn't really sell up its value."

She also highlighted that families must actively apply for the scheme rather than receive it automatically, which reduces participation.

A further requirement for parents to reconfirm their eligibility every three months creates regular drop-offs in the numbers using the support.

Ms Purkess said: "This means some months could see a drop-off as some parents will inevitably forget to do so".

Kate Underwood, founder at Southampton-based Kate Underwood HR and Training, told Newspage she sees the impact among working families every day.

"Tax-free childcare is not a perk, it is the only reason half the parents I know can afford to turn up to work at all.

"The numbers just prove what we already see on the ground. Parents are clinging on to work with tax-free childcare doing all the heavy lifting."

She said managing staffing is challenging for small employers when parents reduce hours because of childcare costs.

Ms Underwood said: "We are desperate for experienced people who can do more than school hours, and we are happy to be flexible, juggle shifts, offer hybrid, all the things.

"But if every extra day they work just disappears straight to childcare, of course they stay part time. It is not a lifestyle choice, it is basic maths."

Samuel Mather-Holgate, managing director and IFA at Swindon-based Mather and Murray Financial, said many families he advises are unaware the scheme exists.

"Tax-free childcare was the centre piece of Labour's socially progressive policies, and it is a huge benefit to working families."

He added: "That said, the Government haven't been shouting about this from the rooftops and many families that seek our advice do not know about this".

He said there may be a financial incentive for low awareness.

Mr Mather-Holgate said: "Clinically, you could think that's due to the amount it could cost if everyone eligible claimed it".

He said the latest figures at least show a large number of families are making use of the support.

Experts have said that employers and parents would benefit from improvements to how the scheme works.

Ms Underwood said: "If the Government is serious about growth, it needs childcare that is simple, predictable and does not punish people for working more".

"Until then, tax-free childcare is not some generous scheme. It is the duct tape holding together family life and the labour market."

Ms Purkess said the system could be more accessible with changes to how it is presented to families.

The system could be more accessible with changes to how it is presented to families, she explained.

"The scheme needs to be rebranded, simplified and marketed much more vigorously by the Government to ensure parents aren't missing out."

The latest spending figures show the Treasury's outlay also fluctuates in line with monthly take-up.

In July 2025, top-up payments totalled £52.9million, before falling to £41.5million in August in line with the drop in families using the scheme.