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How does universal credit childcare interact with other schemes?

Updated on 20 April 2023

Childcare

Help with childcare costs is a complicated area because the Government offers different schemes. Each scheme has different qualifying rules and often the amount you receive can be different. Sometimes if you claim help from one scheme, that can stop you claiming help from other schemes and so you will need to try and work out which one is better for you based on your circumstances.

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Universal credit and childcare vouchers

Childcare vouchers are part of Employer Supported Childcare (ESC). Your employer may offer you childcare vouchers in addition to your salary or in exchange for you giving up part of your salary (called a salary sacrifice). By taking childcare vouchers you will save on some tax and National Insurance. The tax and NIC relief associated with childcare vouchers and directly-contracted childcare was withdrawn from 4 October 2018. Certain people who signed up before that date are eligible to continue receiving the relief.

There is nothing to stop you receiving universal credit and childcare vouchers at the same time. However, you can only claim help through universal credit for costs you actually incurred and paid for in the relevant assessment period. This means you must deduct the value of any vouchers from the childcare costs that you report to DWP for your universal credit claim.

For example, if your childcare costs are £500 a month for one child and you get vouchers of £238 a month from your employer, you can only include £262 a month as your costs for the childcare element of universal credit.

However, if you have sacrificed some of your salary to get childcare vouchers the income figure used for universal credit may be lower than it was before the sacrifice.

In some cases the amount of tax and National Insurance you save from taking the vouchers may not make up for the amount of universal credit that you will lose.

Some people who qualify for universal credit are likely to be better off claiming help through the childcare element of universal credit and not taking childcare vouchers offered through a salary sacrifice. This is because they will lose significantly more universal credit than they will gain in tax and National Insurance savings from taking the vouchers.

However there are some exceptions to this rule. For example, if your childcare costs are a lot higher than the monthly maximums for universal credit then you can claim vouchers as well as the maximum amounts of universal credit.

This means it is important that you check your own position carefully and work out which is better. You should contact a welfare rights adviser at a local advice agency for further support. For more information, see our Getting Help section.

Universal credit and tax credits

Both working tax credit and child tax credit are gradually being replaced by universal credit. You cannot claim both together. Universal credit is now available across the UK which means that HMRC state it is no longer possible to make a brand new claim for tax credits and you will need to claim UC (or pension credit) instead if you require support. Eventually, the tax credit system will be closed down. You can find out more about the introduction of universal credit and how tax credit claimants are affected in tax credits and benefits.

Universal credit and free childcare

You cannot claim the childcare element of universal credit to cover any free childcare. When your child starts getting free childcare, you must tell DWP about any change in the childcare costs you actually pay for. See our free childcare page for more information.

Universal credit and other childcare support

You may qualify for other forms of childcare support such as the childcare grant if you study. Often the rules of these schemes say you cannot claim help if you are already claiming help through the childcare element of universal credit. It is important that you check the rules carefully if you are considering claiming other childcare support at the same time as the childcare element.

Universal credit and tax-free childcare

Under tax-free childcare (TFC), you must open a childcare account and for each 80p you pay in the Government will pay 20p up to a maximum of £2,000 per child per year (£4,000 per disabled child, per year). However, you cannot claim universal credit and tax-free childcare at the same time.

Some people will be better off claiming tax-free childcare than universal credit, while others will be better off claiming universal credit and not claiming tax-free childcare. You can find out more about TFC and how it interacts with universal credit on our TFC page.

Tax guides

Introduction to the tax system How do I work out my tax? What income is taxable? What tax allowances am I entitled to? What tax rates apply to me? How is my tax collected? What if I cannot pay my tax bill? Do I need to complete a tax return? Self Assessment: understanding the basics What is Simple Assessment? How do I claim tax back? How do I claim back tax I have overpaid through PAYE on wages or pensions? How do I claim back tax if I complete a tax return? How do I claim back tax if I am taxed under the Construction Industry Scheme (CIS)? How do I claim back tax on savings income? How do I claim a marriage allowance refund? How do I claim back tax on a payment protection insurance (PPI) pay-out? Should I use a tax refund company? What is National Insurance? How do I get a National Insurance number? What are Specified Adult Childcare credits? What is Scottish income tax? What is devolution? Do I have to pay Scottish income tax? How does Scottish income tax work? What is Welsh income tax? Do I have to pay Welsh income tax? Do I have to join a pension scheme? Tax relief on your pension contributions HMRC digital services Enquiries, penalties, appeals, complaints and debt Enquiries How to survive an enquiry by HMRC Tax penalties Tax appeals Alternative Dispute Resolution How do I complain to HMRC? What if I cannot pay my tax bill? What if I have a tax credits overpayment?
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