How does it interact with other schemes?

Updated on 14 April 2018

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.

This section explains how the childcare element of universal credit (UC) interacts with other childcare schemes. 

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.

There is nothing to stop you receiving UC and childcare vouchers at the same time. However, you can only claim help through UC for costs you actually incur. This means you must deduct the value of any vouchers from the childcare costs that you report to DWP for your UC claim.  

For example, if your childcare costs are £500 a month for one child and you get vouchers of £243 a month from your employer, you can only claim £257 a month as your costs for the childcare element of UC.

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

Most people who qualify for UC are likely to be better off claiming help through the childcare element of UC and not taking childcare vouchers offered through a salary sacrifice. This is because initially you will lose significantly more UC than you 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 UC then you can claim vouchers as well as the maximum amounts of UC.

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.  

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Universal credit and tax credits

Both working tax credit and child tax credit are gradually being replaced by UC. You cannot claim both together. UC is being rolled out across the UK. Eventually, everyone who is claiming tax credits will be moved across to UC. You can find out more about the introduction of UC in our main tax credits and benefits section.  

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Universal credit and free childcare (England only)

All 3 and 4 year olds in England can currently receive 570 hours of free education or childcare per year. This is around 15 hours a week. Some working parents in England may be able to claim 30 hours a week of free childcare if certain conditions are met. Some 2 year olds from low income families are also eligible. You cannot claim the childcare element of UC to cover any free childcare. When your child starts getting free childcare, you must tell DWP about the change in the childcare costs you pay. See our free childcare page for more information.

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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 UC. 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.

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Universal credit and tax-free childcare

Tax-Free Childcare (TFC) was introduced in April 2017 and the gradual roll-out was completed in February 2018 meaning that anyone who meets the qualifying conditions can now use the scheme. Under TFC, you must open a childcare account and for each 80p you pay in the Government will pay 20p up to a maximum of £2000 per child per year (£4000 per disabled child per year). However, you cannot claim universal credit and tax-free childcare at the same time. Your UC claim may be stopped if you make a claim for TFC.

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. This assumes you are in an area where you must claim UC instead of tax credits. You can find out more on our TFC page.

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