TFC30700 | Childcare accounts: permitted and prohibited payments from childcare accounts

Childcare Payments Act 2014, section 20

There are only two types of payments that may legally be made from a childcare account, which are known as permitted payments;

• payments for qualifying childcare for the child for whom the account is held

• withdrawals made by the account holder

Any payment made from a childcare account that is not a permitted payment and is not made by the account provider to HMRC is a prohibited payment.

If a parent makes or permits a payment to be made from their childcare account that is a prohibited payment, they are liable to repay the top-up element of the payment. This is provided for under section 40(2) of the Childcare Payments Act 2014.

Permitted payments can be made from a childcare account during an entitlement period, whether the account holder has made a valid declaration of eligibility for that period or not. This allows an account holder to continue to spend accumulated balances in their childcare account for qualifying purposes even when they are no longer entitled to further top-up payments because they have not reconfirmed their eligibility.

Where a payment is made from a childcare account and only part of the payment is for the purpose of qualifying childcare, only that part of the payment which is attributable to qualifying childcare provided for the relevant child will be treated as a permitted payment, and the rest will be treated as a prohibited payment.

Example:

Joyce has two children, Emma, and Mark. She only holds a childcare account for Mark but both children attend the same childcare provider. Joyce pays her childcare costs for Emma and Mark via a single payment from her childcare account. Half of the payment that Joyce pays is a permitted payment and half is a prohibited payment.