Working parents worried about the high price of summer childcare are being told not to miss out on a scheme that can help cover the costs of holiday clubs.

An estimated 1.3 million working families are eligible for support - where up to £2,000 every year is available for babies and children aged up to 11 through an offer known as Tax Free Childcare.

However thousands of households, estimates HM Revenue and Customs, are still not signed up, which alongside helping to pay for nurseries, before and after school clubs and childminders, will also help cover the costs of approved childcare schemes once schools have broken up.

And with the average cost of summer holiday childcare now on average £145 a week in Britain, combined with the rising cost of living, households may need all the help this summer they can get, so here's how it works.

What is the Tax Free Childcare Scheme?

Tax Free Childcare is administered by HM Revenue and Customs. Through the scheme, families can receive up to £2,000 a year per child - or £4,000 if their child is disabled - to put towards the cost of childcare.

The help is available for children up to the age of 11, or age 17 if the child has a disability.

The money can help towards the cost of holiday clubs, before and after school clubs, childminders, nurseries or other approved childcare schemes.

How do you get the top-up?

The government will pay 20% of childcare costs by topping up the money households pay into a Tax-Free Childcare account.

This means for every £8 paid into the online account, families will automatically receive an additional £2 in a government top-up and this fund is then used to pay for approved childcare.

Who can use the scheme?

More than 384,280 families used Tax-Free Childcare in March 2022 – the highest number of families recorded since it was launched in April 2017. Research by HMRC released earlier this year estimates 1.3million families can take up the government support.

Tax Free Childcare is designed for working families, including the self-employed, who are earning under £100K a year and at least £152 a week each, which is equal to 16 hours work at the national minimum or living wage.

You must not be receiving Tax Credits, Universal Credit or childcare vouchers to sign-up and your children must be aged between nought and 11 or nought to 16 if they have a disability and live with you. Adopted children are eligible, says HMRC, but foster children are not.

Helen Whately, former HM Treasury’s Exchequer Secretary to the Treasury, says now is the time for families to explore what they might be entitled to.

She explains: "Tax-Free Childcare helps families with the cost of childcare bills but we know that thousands of parents could be missing out. That is why I’m encouraging families to sign up now and save on childcare costs.

"There are lots of fantastic holiday clubs and childcare providers to help working parents during the upcoming summer holidays, so now is the time to take advantage of this support."

You can't get Tax-Free Childcare if either you, or your partner, each individually expect to earn £100,000 or more.

How do you set an account up?

Accounts can be opened at any time of the year and be used straight away. Money can also be deposited at any time and then used when needed. The scheme is open all year round to help pay for regulated childcare while any unused money paid-in can be simply withdrawn at any time.

You can pay your money into your account using a debit card but those behind the scheme say it can be quicker via standing order or bank transfer.

For every £8 you pay into your online account, the government will add an extra £2, up to the value of £2,000 per child per year - that's up to £500 in additional help every three months. If you therefore pay £750 in childcare costs per month, your household would be required to pay £600 into the account, the government would add an additional £150, leading to an annual saving for parents of £1,800.

You then use the money in your childcare account, including the government top-up, to make one-off or regular monthly payments to the companies or individuals you're using for childcare. However your childcare provider - or providers - must be signed up to the scheme also to receive the Tax-Free Childcare payments.

Can you use Tax-Free Childcare alongside other schemes?

While you can't join the scheme if you already use childcare vouchers or are claiming certain other benefits, Tax-Free Childcare, where available, can be used at the same time as both the 15-hours and 30-hours of free childcare policy available to those with children who haven't yet started school.

If you wish to change the scheme you're signed up to, you must tell your employer within 90 days of applying for Tax-Free Childcare that you wish to stop your childcare vouchers or directly contracted childcare. And you may have to give HMRC evidence of leaving the childcare voucher scheme - for example a copy of the letter telling your employer you're leaving the voucher scheme.

How to sign up?

The website Childcare Choices helps to administer government-supported childcare schemes and will help you assess whether you are eligible for the extra money and support.

You can sign up via the government website here and should have details like your national insurance number, and your partner's, to hand or your unique taxpayer reference if you're self-employed.

It takes 20 minutes to apply, says HMRC, and you can pay your provider with money from your account once the money is shown as ‘cleared funds’. Payments should show in your provider’s account within 24 hours, depending on their bank.