£100k Childcare Cliff Edge: How to Keep Your Free Hours
All tax calculations in this guide use 2025/26 tax year rates and thresholds. Updated to reflect the September 2025 expansion to 30 hours for under-3s.
Childcare in the UK is expensive, often over £1,000 per month for full-time nursery. The good news? The government offers several schemes to help, and you can often combine them. The bad news? They're complicated, and high earners face harsh cliff edges where earning slightly more can cost you thousands in lost benefits.
This guide explains all the childcare benefits available, who qualifies, how they work together, and, most importantly, how to avoid the traps that catch thousands of families every year.
The Three Main Childcare Benefits
| Benefit | What You Get | Who Qualifies | Income Limit |
|---|---|---|---|
| Tax-Free Childcare | 25% government top-up on childcare payments (max £2,000/year per child) | Working parents with children under 12 | Each parent under £100,000 |
| Free Childcare Hours | 30 hours/week for working parents (9 months until they start school); 15 hours universal for 3-4 year olds | Working parents from 9 months; all families from age 3 | Each parent under £100,000 for working parent entitlement |
| Childcare Vouchers | Up to £933/year tax saving per parent (£1,866 for higher-rate taxpayers) | Only if you joined before October 2018 | None |
Tax-Free Childcare: The 25% Government Top-Up
How It Works
Think of this as the government giving you a 25% discount on childcare. You open an online account, pay money in for nursery fees, and the government automatically adds 25% extra. Pay in £800, they add £200, you have £1,000 to spend.
The maximum government contribution is £2,000 per child per year (£4,000 for disabled children). That means if you spend £10,000+ on childcare annually, you get the full £2,000 benefit. If you spend less, you get 25% of whatever you spend.
Who's Eligible?
- Your child is under 12 (or under 17 if disabled)
- You and your partner (if you have one) both work
- Each of you earns at least £10,158/year (equivalent to 16 hours/week at National Minimum Wage)
- Neither of you earns over £100,000/year
This is an all-or-nothing benefit. If either parent earns £100,000 or more in a quarter, you lose Tax-Free Childcare for that entire quarter. Earning £99,999 = fully eligible. Earning £100,001 = lose it all.
With two children, crossing £100k can cost you £4,000/year in lost benefits. We'll show you how to avoid this below.
Free Childcare Hours: Government-Funded Nursery Time
How It Works
The government pays your nursery or childminder directly for a set number of hours per week during term time (38 weeks/year). You can "stretch" this across the full year if you prefer (same total hours, but fewer per week year-round).
What You Get by Age (From September 2025)
Major expansion: From September 2025, eligible working parents now get 30 hours/week of funded childcare from when their child is 9 months old until they start school (typically the September after they turn 4). This doubled from the previous 15 hours for under-3s, representing savings of up to £8,000 per year per child.
| Child's Age | All Families | Working Parents | Annual Value (approx) |
|---|---|---|---|
| 9 months - 2 years | 0 hours | 30 hours/week | ~£8,000 |
| 2-3 years | 0 hours | 30 hours/week | ~£8,000 |
| 3-4 years (until school starts) | 15 hours/week (universal) | 30 hours/week | ~£4,000 or ~£8,000 |
The "universal" 15 hours for 3-4 year olds has no income test. Every family gets it regardless of earnings or working status. The 30 hours for working parents requires both parents to be working and earning under £100,000 each.
When does it end? Free childcare hours stop when your child starts Reception class (typically the September after they turn 4). After that, they're in school which is also free, but you can still use Tax-Free Childcare for wraparound care until they turn 12.
When to Apply
You can apply from when your child is 23 weeks old. When you can start using your hours depends on when your child turns 9 months:
- Child turns 9 months between 1 September and 31 December → hours start in January
- Child turns 9 months between 1 January and 31 March → hours start in April
- Child turns 9 months between 1 April and 31 August → hours start in September
Free childcare hours use the same £100,000 limit as Tax-Free Childcare. Cross that threshold and you lose both benefits simultaneously. For a family with a 1-year-old, this could mean losing ~£8,000 in free hours plus £2,000 in Tax-Free Childcare = £10,000 total.
Childcare Vouchers: The Old Scheme (Closed to New Joiners)
If you joined a childcare voucher scheme through your employer before October 2018, you can keep using it. New people can't join any more, but if you're already in, it might be better than Tax-Free Childcare.
How It Compares
| Scenario | Tax-Free Childcare | Childcare Vouchers | Winner |
|---|---|---|---|
| Basic-rate taxpayer, 1 child, 2 parents | £2,000/year max | £1,866/year (£933 each) | Tax-Free Childcare |
| Higher-rate taxpayer, 1 child, 2 parents | £2,000/year max | £3,732/year (£1,866 each) | Childcare Vouchers |
| Higher-rate taxpayer, 2+ children | £4,000+/year | £3,732/year (same amount regardless) | Tax-Free Childcare |
| Income over £100,000 | Not eligible | Still eligible (no income limit) | Childcare Vouchers |
You can't have both. If you switch from vouchers to Tax-Free Childcare, you can't switch back. Do the maths carefully before switching.
How the Benefits Work Together
The good news: Tax-Free Childcare and free childcare hours work together perfectly. Use your free hours, then use Tax-Free Childcare to pay for additional hours or wraparound care.
Scenario: Working parents, 2-year-old in nursery 50 hours/week, 50 weeks/year
Nursery rate: £8/hour
What you get:
- Free hours: 30 hours/week × 38 weeks = 1,140 hours/year (worth ~£9,120 at £8/hour)
- You can "stretch" this to ~23 hours/week across 50 weeks
- Remaining paid hours: 27 hours/week × 50 weeks = 1,350 hours = £10,800/year
Tax-Free Childcare benefit:
- You pay £8,000 into your TFC account
- Government adds 25%: £2,000 (the maximum)
- Total available: £10,000
- Remaining £800 you pay directly
Your actual cost: £8,800 (instead of £20,000 without any benefits)
Total benefit: £11,200/year (£9,120 in free hours + £2,000 Tax-Free Childcare top-up)
Scenario: Working parents, 6-year-old in breakfast club and after-school club
Cost: Breakfast club £6/day + after-school £15/day = £21/day × 190 school days = £3,990/year
What you get:
- Free hours: None (child is in school)
- Tax-Free Childcare: Still available until age 12
Tax-Free Childcare benefit:
- You pay £3,192 into your TFC account
- Government adds 25%: £798
- Total: £3,990
Your actual cost: £3,192 (saving £798/year)
The £100,000 Cliff Edge: How to Avoid It
The single biggest trap in UK childcare benefits is the £100,000 income limit. It applies to both Tax-Free Childcare and the 30 hours for working parents. Cross it, and you lose both instantly.
What "£100,000" Means
It's your adjusted net income, i.e. roughly your gross salary minus:
- Pension contributions (including salary sacrifice)
- Gift Aid charitable donations
- Trading losses (if self-employed)
Adjusted Net Income Explained
Understanding adjusted net income (ANI) is crucial for parents near the £100,000 threshold. It's not the same as your gross salary or your take-home pay—it's a specific HMRC calculation that determines your eligibility for childcare benefits.
The formula: Adjusted Net Income = Gross Income − Pension Contributions − Gift Aid Donations (grossed up) − Trading Losses
The key insight is that pension contributions directly reduce your ANI. If you earn £105,000 and contribute £5,250 via salary sacrifice (5%), your ANI drops to £99,750—keeping you under the threshold.
| What Reduces ANI | What Doesn't Reduce ANI |
|---|---|
| Pension contributions (personal or salary sacrifice) | Student loan repayments |
| Gift Aid donations (grossed up by 25%) | National Insurance contributions |
| Trading losses (self-employed) | Income tax paid |
| Employer pension contributions (salary sacrifice only) | Childcare vouchers |
Worked Examples
Gross salary: £105,000
Pension contributions: £0
Adjusted net income: £105,000
Childcare eligibility: ❌ Not eligible (over £100,000)
Tax breakdown:
- Income tax: £30,432
- National Insurance: £4,111
- Net pay: £70,457
Gross salary: £105,000
Pension contributions (salary sacrifice): £5,250 (5%)
Adjusted net income: £99,750
Childcare eligibility: ✅ Eligible (under £100,000)
Tax breakdown:
- Income tax: £27,332
- National Insurance: £4,006
- Pension pot: £5,250
- Net pay: £68,412
The trade-off: £2,045 less cash in hand, but you keep up to £10,000 in childcare benefits (per child) AND build £5,250 in pension savings.
Gross salary: £110,000
To stay under £100,000 ANI: Need to contribute more than £10,000 to pension (e.g. £11,000 or 10%)
Without pension (ANI = £110,000):
- Income tax: £33,432
- National Insurance: £4,211
- Net pay: £72,357
- Childcare eligibility: ❌ Not eligible
With 10% pension (ANI = £99,000):
- Income tax: £27,032
- National Insurance: £3,991
- Pension pot: £11,000
- Net pay: £67,977
- Childcare eligibility: ✅ Eligible
The maths: You give up £4,380 in take-home pay, but gain £11,000 pension savings AND preserve up to £10,000/year in childcare benefits per child.
→ Try this example with 2 children (ages 1 and 3) in our calculator
Gross salary: £102,000
Gift Aid donations: £1,600 (grossed up to £2,000)
Adjusted net income: £100,000
Childcare eligibility: ✅ Just eligible
Gift Aid donations are "grossed up" by 25% when calculating ANI. A £1,600 donation counts as £2,000 off your ANI. Combined with pension contributions, this can help borderline cases stay under the threshold.
Salary sacrifice pensions are most effective for reducing ANI because they reduce your gross salary before it's tested. You also save National Insurance (though this may be capped from April 2028).
Relief at source pensions (most personal pensions) still reduce ANI, but you don't get the NI saving.
Check with your employer which type of pension scheme you have—it makes a real difference to the numbers.
Strategy 1: Pension Contributions
This is the most effective strategy. If you earn £105,000 and pay £5,250 into your pension via salary sacrifice, your adjusted net income drops to £99,750 and you stay eligible.
Salary sacrifice pensions work best because they reduce your gross salary before it's tested for childcare benefits. Plus you save National Insurance too.
The November 2025 Budget signalled that from April 2028 the NI saving on salary sacrifice pension contributions will be capped. Income tax relief and the adjusted net income reduction should remain, but the NI boost may shrink above a threshold. Keep using pensions to stay under £100k, but expect reduced NI upside and check employer scheme updates in advance of 2028.
Gross salary: £105,000
Family: 2 children (ages 1 and 3, both in nursery)
Salary sacrifice pension contribution: £6,000/year (£500/month)
Adjusted net income: £99,000
Benefits preserved:
- Free childcare hours: 30 hours each for 1-year-old and 3-year-old (~£16,000 total)
- Tax-Free Childcare: £2,000 per child = £4,000
- Total: £20,000
Cost of £6,000 pension contribution:
- Take-home reduction: £2,480 (after 40% tax + regained personal allowance + 2% NI relief)
- Pension pot increase: £6,000
Net position: £2,480 less cash in hand, keep £20,000 benefits, gain £6,000 pension savings
Strategy 2: Timing Bonuses
Tax-Free Childcare is assessed quarterly, and free childcare hours are reconfirmed every 3 months. If you get a large annual bonus, consider:
- Deferring it to the next tax year if possible
- Paying it into your pension (reducing adjusted net income)
- Accepting you'll lose benefits for one quarter only (not the whole year)
Strategy 3: Split Income (Contractors Only)
If you're a contractor running a limited company, you have flexibility in how you take income (salary vs dividends). If one partner earns £120,000 and the other earns £40,000, restructuring through dividends or other arrangements might help both stay under £100,000.
Income splitting has tax and legal implications. Always consult an accountant before restructuring your income to preserve childcare benefits.
Common Scenarios: What Benefits Do I Get?
Scenario 1: Both Parents Earn £50,000, One 1-Year-Old
- ✅ Free childcare hours: 30 hours/week (~£8,000 value)
- ✅ Tax-Free Childcare: Up to £2,000
- ❌ Childcare vouchers: Not available (unless joined before 2018)
Total benefit: Up to £10,000/year
Scenario 2: One Parent Earns £90,000, Other Doesn't Work, One 2-Year-Old
- ❌ Free childcare hours: Need both parents working
- ❌ Tax-Free Childcare: Need both parents working
- ❌ Childcare vouchers: Not available (unless joined before 2018)
Total benefit: £0 (but you get universal 15 hours when child turns 3)
Scenario 3: Both Parents Earn £95,000, Two Children (Ages 1 and 4)
- ✅ Free childcare hours: 30 hours/week for 1-year-old (~£8,000) + 30 hours/week for 4-year-old (~£8,000)
- ✅ Tax-Free Childcare: Up to £4,000 (£2,000 per child)
- ❌ Childcare vouchers: Not available (unless joined before 2018)
Total benefit: Up to £20,000/year
Scenario 4: One Parent Earns £110,000, Other Earns £60,000, One 2-Year-Old
- ❌ Free childcare hours: Not eligible (one parent over £100k)
- ❌ Tax-Free Childcare: Not eligible (one parent over £100k)
- ✅ Childcare vouchers: Still eligible if already enrolled
Lost benefit: ~£10,000/year (30 hours worth ~£8,000 + £2,000 Tax-Free Childcare)
Consider: £11,000 pension contribution (10%) to bring higher earner under £100k threshold
→ See the impact in our calculator
How to Apply
Tax-Free Childcare and Free Childcare Hours
You apply for both through the same government website: Childcare Choices
- Answer questions about your family and income
- Get instant decision on what you're eligible for
- Receive your Tax-Free Childcare account (if eligible)
- Receive your 30 hours code to give to your provider (if eligible)
- Reconfirm eligibility every 3 months
You must reconfirm every 3 months or you lose your benefits. Set a calendar reminder. If you miss the deadline, you'll have to reapply and there may be gaps in your childcare funding.
Childcare Vouchers
If your employer still offers them (only for people who joined before October 2018), you sign up through your employer's payroll or HR system. The vouchers come out of your gross salary before tax.
Common Questions
Can I get both Tax-Free Childcare and free childcare hours?
Yes! They're designed to work together. Use your free hours first, then use Tax-Free Childcare to pay for additional hours or wraparound care (before/after nursery hours).
When did the 30 hours for under-3s start?
From September 2025, eligible working parents get 30 hours per week (up from 15 hours) for children aged 9 months until they start school. This expansion represents potential savings of up to £8,000 per year per child.
When exactly do free childcare hours end?
Free childcare hours end when your child starts Reception class, which is typically the September after they turn 4. For example, if your child turns 4 in March 2026, their free hours end in September 2026 when they start school. Tax-Free Childcare continues until they turn 12 for wraparound care.
What if my income fluctuates around £100k?
Benefits are assessed quarterly. If you go over £100k in one quarter, you lose benefits for those 3 months only. You can reapply next quarter if you're back under. Track your income carefully and use pension contributions to smooth out spikes.
Is the £100k limit per person or combined?
Per person. If you earn £90k and your partner earns £90k (£180k combined), you're still eligible. But if either of you earns £100k+, you're out.
Should I switch from childcare vouchers to Tax-Free Childcare?
It depends. If you're a higher-rate taxpayer with one child, vouchers might be better (£3,732 for two parents vs £2,000). If you have multiple children or earn over £100k, Tax-Free Childcare or staying with vouchers may be better. You can't switch back, so calculate carefully.
What if only one of us works?
You can't get Tax-Free Childcare or the 30 hours for working parents—both require both parents to be working (or one parent if you're a single parent). You do get the universal 15 hours once your child turns 3, regardless of working status.
I'm self-employed with variable income, how does the £100k test work?
HMRC looks at your self-assessment tax return. They use your adjusted net income from the most recent return. If your income varies significantly year-to-year, you might be eligible some years and not others. You reconfirm quarterly, so HMRC can check updated information.
Does the 30 hours apply in Scotland, Wales, or Northern Ireland?
No, the September 2025 expansion to 30 hours from 9 months only applies in England. Scotland, Wales, and Northern Ireland have their own childcare schemes with different rules and entitlements.
What is adjusted net income for childcare benefits?
Adjusted net income is your total taxable income minus specific deductions: pension contributions, Gift Aid donations, and trading losses. It's the figure HMRC uses to test whether you're over the £100,000 threshold for childcare benefits. Crucially, it's lower than your gross salary if you make pension contributions. See our detailed explanation with examples above.
How Our Calculator Helps
Our tax calculator automatically identifies when your income approaches the £100,000 threshold and shows you:
- Whether you're at risk of losing childcare benefits
- The total value of benefits you'd lose (now up to £10,000+ per child)
- How much pension contribution would keep you under the threshold
- The optimal strategy to preserve maximum benefits whilst building retirement savings
- Your net position after accounting for tax relief, NI savings, and preserved benefits
Enter your income, partner's income, and number of children (with ages), and the calculator will flag any cliff edges and suggest the best approach for your situation.
Key Takeaways
- Tax-Free Childcare gives you a 25% government top-up (max £2,000/year per child)
- From September 2025: Working parents get 30 hours/week from 9 months until their child starts school
- This expansion can save up to £8,000 per year per child
- Both benefits work together—use free hours plus Tax-Free Childcare for additional hours
- Both benefits cut off completely if either parent earns £100,000+ (harsh cliff edge)
- Adjusted net income is the key figure—pension contributions and Gift Aid reduce it
- Budget 2025: salary sacrifice NI saving expected to be capped from April 2028—adjust forecasts
- If you have old childcare vouchers and earn over £100k or are a higher-rate taxpayer with one child, keep them
- The universal 15 hours for 3-4 year olds has no income test—everyone gets it
- Reconfirm your eligibility every 3 months or you'll lose benefits
- The 30 hours expansion applies to England only—Scotland, Wales, and NI have different schemes