The number of parents grouping just under the £100,000 'tax trap' salary to maintain access to free childcare is expected to "grow dramatically", according to tax researchers. The Centre for the Analysis of Taxation (Centax) estimates that nearly 12,000 parents could be deliberately keeping their income below this threshold to qualify for free childcare.
This figure marks a significant increase from 2022, when government data showed approximately 1,100 parents of three and four-year-olds holding their income below £100,000. The state-funded childcare scheme, introduced by former Chancellor Jeremy Hunt in March 2023, provides 30 hours per week of childcare for under five-year-olds to parents earning less than £100,000 annually.
Centax analysts also highlighted that one third of parents earning between £100,000 and £120,000 have claimed and received free childcare. This is possible because parents can inform officials that their expected adjusted net income is below £100,000.
The government is currently reviewing the success of this policy, which costs nearly £5bn a year. Centax suggests solutions such as basing the system on actual rather than projected income, or raising the threshold to £111,000 at "no additional fiscal cost".