Is childcare
tax deductible?

No. Childcare is a personal cost, even if you only need it so you can work, and GOV.UK says you cannot claim for carers or domestic help such as nannies (GOV.UK). Help with childcare comes instead through Tax-Free Childcare, which adds £2 for every £8 you pay, up to £2,000 a year per child (GOV.UK).

For many self-employed parents, childcare is the cost that makes work possible, and it feels like it should be deductible. The law disagrees: you would need childcare whatever work you did, so it is a personal cost of being a parent. The support the government gives comes through separate schemes, which self-employed parents can use.

Is childcare tax deductible?

The HMRC rule

A cost is only allowable if it is incurred wholly and exclusively for the business. Everyday living costs, health, appearance and leisure have a personal purpose, so they are not allowable even when they help you work. The rule comes from Staff expenses, Tax-Free Childcare.

GOV.UK's staff expenses guidance says a sole trader cannot claim for carers or domestic help, for example nannies (staff expenses). Tax-Free Childcare pays 20% of childcare costs, up to £2,000 a year for each child, or £4,000 for a disabled child, for eligible working parents including the self-employed (Tax-Free Childcare).

When you can claim it

• Tax-Free Childcare, a 20% top-up worth up to £2,000 a year per child.
• Funded childcare hours for eligible working parents in England, and schemes in Scotland, Wales and Northern Ireland.
• Universal Credit childcare support, if you claim Universal Credit.
• Childcare provided for your employees, which has its own exemptions.

When you cannot

• Nursery, childminder, nanny or after-school club fees as a business expense.
• A nanny’s wages through payroll as a staff cost of your business.
• Babysitting so you can attend a work event.
• School fees.

What to claim instead

Open a Tax-Free Childcare account: for every £8 you pay in, the government adds £2. Combine it with funded hours where your children are eligible. If you employ a nanny, you are a domestic employer and run a separate payroll, but the cost is still personal.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is not a cost of running the business at all, so the accounting basis makes no difference: it never goes in your expenses, although it may have a relief of its own elsewhere on the return.
4. Is there a specific rule? For childcare, the deciding rule is personal costs: a cost is only allowable if it is incurred wholly and exclusively for the business. Everyday living costs, health, appearance and leisure have a personal purpose, so they are not allowable even when they help you work.

Worked example: a self-employed parent using Tax-Free Childcare

A freelance copywriter pays £8,000 a year in nursery fees for her daughter. None of it is a business expense. Through Tax-Free Childcare, she pays £6,000 into the account and the government adds £2,000, so her net cost falls to £6,000, the most support available for one child.

Why childcare is personal

Expenses must be incurred wholly and exclusively for the business. Childcare has a personal purpose, caring for your child, which exists whatever work you do, so it fails the test. The courts have reached the same conclusion for employees, and GOV.UK's guidance for the self-employed says it directly.

Tax-Free Childcare eligibility

You and any partner must each expect to earn at least the National Minimum Wage for 16 hours a week on average over the next three months, and neither of you can have adjusted net income over £100,000. If you have been self-employed for less than 12 months, you do not have to meet the earnings test. You reconfirm your details every three months.

Funded hours

Working parents in England can get funded childcare hours for children from nine months old, subject to the same earnings conditions. Scotland, Wales and Northern Ireland have their own schemes. You can use funded hours and Tax-Free Childcare together for the same child.

The £100,000 cliff

If your adjusted net income goes over £100,000, you lose Tax-Free Childcare and funded hours entirely. For a sole trader with profits near that level, allowable expenses and pension contributions, which reduce adjusted net income, can be worth far more than their tax value alone.

Nannies and domestic employers

If you employ a nanny, you are a domestic employer. You register with HMRC, run payroll and pay employer's National Insurance, but the costs remain personal because the work is for your household, not your business. The Employment Allowance cannot be used for domestic staff, other than care and support workers.

Childcare for employees

If you employ people, some childcare support for them is exempt from tax, such as places in a workplace nursery you run. That is a benefit to your employees and allowable for the business. It does not extend to your own children.

Where it goes on your return and in MTD

It is not an allowable expense, so it does not reduce your profit. Where your bookkeeping shows it as a business payment, record it as drawings, or include it and add it back as a disallowable expense on the full self-employment pages.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep your Tax-Free Childcare account records and reconfirmation confirmations. For your business accounts, childcare paid from the business account is drawings, not an expense.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Putting nursery fees through the business.
• Running a nanny through the business payroll as a staff cost.
• Missing Tax-Free Childcare because you assume self-employed parents cannot use it.

Related expenses

This item sits in the wages, salaries and other staff costs category, alongside employer’s National Insurance, pension contributions, private health insurance, staff Christmas parties and events, staff gifts and trivial benefits and wages, including family wages. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.