TFC30900 - Childcare accounts: refunds of payments from childcare accounts

Childcare Payments Act 2014, sections 23 (1) to (3) and section 40 (3)

If a payment is made from a childcare account and the whole or part of that payment becomes repayable to the account holder, the repayable amount must be repaid into the childcare account. This is because any refund will contain a top-up element which needs to be spent on qualifying childcare or returned to HMRC.

If a childcare provider repays such funds direct to the parent, they are liable for the top up (See TFC50800 – Other cases)

Example 1

Donald makes an advance payment of £1,000 to a nursery from his childcare account. The nursery cannot provide all the childcare he wants, and they refund the account provider with £500. As per the calculation in section 21, this will consist of a qualifying payment of £400 and a top-up element of £100. The refund must be returned to the childcare account, but because of section 19(1)(b) it will not attract a further top-up payment. Once this amount has been returned to the account, Donald will be able either to spend the £500 on qualifying childcare or to withdraw his original £400 qualifying payment, in which case the £100 of top-up will be returned to HMRC.

Where a repayment is made partly of money from a childcare account and partly of money which is not from the childcare account, any part of the repayment which is more than the amount that is not from the childcare account must be put into the childcare account.

Example 2

Misbah owes her childcare provider £1,000. As she only has £700 in her childcare account, she pays the remaining £300 from her bank account. However, the childcare provider subsequently refunds £500 which is treated as consisting of £300 from the bank account and £200 from the childcare account. Misbah must repay the £200 into her childcare account and will not attract a top-up payment.

In cases where the childcare account has been closed before the repayment can be made into it, the childcare provider must pay the repayment to the account provider. The account provider must then return the top up element to HMRC and pay the remainder to the person that held the account. This prevents Government money being in the hands of an account holder with no compulsion to spend it on childcare. If the entire amount of money is deposited back into the childcare account, the account holder can withdraw the element they deposited as a normal withdrawal.