Can I still claim the 15 hours if I earn over £100,000?

Yes. The 15 hours of free childcare for 3 and 4-year-olds is a universal entitlement and is not linked to income. You will keep this regardless of what you earn.

Does HMRC look at my monthly salary or my annual income?

HMRC assesses eligibility based on your annual adjusted net income. Monthly fluctuations do not affect eligibility directly, but your year-end adjusted net income figure is what determines whether you met the threshold for the year.

Can employer pension contributions help me qualify?

Employer pension contributions do not reduce your adjusted net income in the same way as your own contributions. However, salary sacrifice arrangements (where you agree to reduce your salary in exchange for employer pension contributions) do reduce your gross pay and therefore your adjusted net income.

What if my income fluctuates and I am sometimes above, sometimes below?

HMRC reconfirms eligibility every three months based on an estimate of your annual income for the current tax year. If you expect to be below £100,000 for the full year, you should confirm this at each reconfirmation. If you end up over the threshold at the end of the year, you may need to repay any benefits received.

How do I calculate my adjusted net income?

Start with your total taxable income (salary, dividends, rental income, self-employment profits). Then deduct gross pension contributions, Gift Aid donations at the gross value, and any trading losses. The resulting figure is your adjusted net income. Because small differences can have a significant impact on childcare eligibility, many families in this position choose to have their adjusted net income professionally reviewed.

Can I Claim Free Childcare Earning Over £100,000?

A plain-English guide to childcare eligibility, the £100,000 threshold, and how to keep or recover your entitlement.

If your adjusted net income exceeds £100,000, you lose access to the 30 hours of free childcare and Tax-Free Childcare. But adjusted net income is not the same as your salary, and many families earning above £100,000 on paper still qualify, or can take steps to bring themselves back within the threshold. This guide explains how the rules work and what your options are.

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The Childcare Schemes Available to UK Parents

The government offers three main childcare schemes for working parents of young children:

15 hours free childcare

Available to all 3 and 4-year-olds, regardless of parental income. This is a universal entitlement and is not affected by how much you earn.

30 hours free childcare

An additional 15 hours per week (38 weeks per year) for 3 and 4-year-olds of working parents. To qualify, both parents (or the sole parent in a single-parent household) must be in work and earning the equivalent of at least the National Living Wage for 16 hours a week on average. Neither parent can have adjusted net income over £100,000.

Tax-Free Childcare

For every £8 you pay into your childcare account, the government adds £2, up to £2,000 per child per year (or £4,000 for a disabled child). The £100,000 adjusted net income limit applies to each parent individually.

There is also a funded childcare expansion for eligible 2-year-olds, and from September 2024, for children from 9 months old. Eligibility rules for these expanded offers follow the same income threshold structure.

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What Adjusted Net Income Actually Means

The £100,000 threshold is based on your adjusted net income, not your gross salary. These can be very different figures, and understanding the distinction is key.

Adjusted net income is broadly your total taxable income (salary, rental income, dividends, self-employment profits, and so on), minus certain deductions including:

Pension contributions paid into a registered pension scheme (including relief at source and net pay arrangements)
Salary sacrifice into a pension (which reduces your gross pay before tax)
Gift Aid donations (the gross value, including the basic-rate tax added by HMRC)
Trading losses

This means a parent with a £105,000 salary who pays £6,000 per year into a pension (gross) would have an adjusted net income of £99,000, below the threshold and eligible for the 30 hours and Tax-Free Childcare.

HMRC uses your adjusted net income as reported through Self Assessment or PAYE. Eligibility is re-confirmed every three months through the government’s Childcare Service, so it is important to keep your details accurate and up to date.

The Income Threshold: What Actually Changes at £100,000

If either parent’s adjusted net income exceeds £100,000, you lose access to both the 30 hours of free childcare and Tax-Free Childcare. The rule is a hard cliff edge there is no tapering. Earning £100,001 has the same effect as earning £150,000.

The 15 hours of universal free childcare for 3 and 4-year-olds is unaffected. You keep that regardless of income.

The limit applies to each parent independently. If one parent earns £90,000 and the other earns £115,000, you are ineligible even though the lower-earning parent is under the threshold.

HMRC assess eligibility based on the current tax year’s adjusted net income. If your income changes part way through a year, your eligibility can change at the next quarterly reconfirmation point. This is why families near the threshold can see eligibility shift from year to year even when their salary appears broadly similar.

Strategies to Stay Below the Threshold

The most effective strategies involve reducing your adjusted net income through legitimate tax planning. Here are the main options:

Pension contributions

Increasing your pension contributions is the most straightforward way to reduce your adjusted net income. Contributions to a registered pension scheme reduce your adjusted net income pound for pound (up to the annual allowance). A parent earning £108,000 who contributes £8,000 net (£10,000 gross) to a personal pension would bring their adjusted net income to £98,000.

If your employer offers a salary sacrifice pension arrangement, the effect is even more direct. Your gross pay is reduced before income tax and National Insurance are calculated, which also saves on employer NI. However, pension contributions via salary sacrifice reduce your gross pay for all purposes, which may affect mortgage applications and other income-based calculations.

Gift Aid donations

Charitable donations made under Gift Aid are deducted from your adjusted net income at the grossed-up value. A £8,000 Gift Aid donation is treated as a £10,000 gross deduction from your adjusted net income. This is worth considering if you already make charitable donations ensuring they are made under Gift Aid rather than informally means they count towards reducing your threshold.

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Salary sacrifice for other benefits

Some employers offer salary sacrifice arrangements for benefits other than pensions such as cycle to work, electric vehicle schemes, or extra holiday purchase. These also reduce your gross pay and therefore your adjusted net income. The savings are smaller than pension contributions but can be a useful supplement.

Timing income and bonuses

If you have some control over when you receive income for example, if you are a director and can choose when to take dividends, or if a bonus can be deferred it may be possible to manage your income across two tax years to avoid the threshold in a particular year. This requires advance planning and should be discussed with an accountant.

A note on Childcare Vouchers

The Childcare Voucher scheme closed to new applicants in October 2018 and is no longer available as an option. Parents who joined before that date may still be in the scheme, but it cannot be used as a planning strategy for new entrants.

What If I Lose Entitlement Mid-Year?

Childcare eligibility is reconfirmed every three months. If your income rises above £100,000 at a quarterly check, you will lose the 30 hours and Tax-Free Childcare from that point. If it falls back below the threshold at a later check, you can reapply.

Importantly, if you receive childcare funding and your circumstances change, you must report this to HMRC promptly. Continuing to claim support you are no longer entitled to can result in you having to repay funding, and in some cases penalties.

Reduce Tax Impact on Family Benefits With Expert Advice

Earning over £100,000 can significantly impact your eligibility for Tax-Free Childcare and other government support, often catching families off guard. At Cigma Accounting, individuals across London, including Fulham Broadway, Parsons Green, and Walham Green, receive clear guidance on income thresholds, tapering rules, and planning opportunities to retain valuable benefits. Speaking to a tax accountant London can help you assess your position and avoid unintentionally losing entitlement.

Careful income planning, pension contributions, and timing strategies can make a meaningful difference to your eligibility and overall tax position. Cigma Accounting, with physical offices across London, provides practical and reliable accounting services London to help you stay compliant, optimise your income structure, and make informed financial decisions with confidence.