How much does Universal Credit pay towards childcare?

How much does Universal Credit pay towards childcare is a question you might have asked yourself recently, especially as average childcare costs in the UK (opens in new tab) are rising and the cost of raising a child (opens in new tab) becomes more expensive.

Millions of families are feeling the pinch as a result of higher living costs, and figures from the Trades Union Congress (TUC) (opens in new tab) show that the cost of childcare for parents with children under two has increased by more than £2,000 a year since 2010.

The good news is that many households are entitled to benefits that could help reduce these costs. Changes have also been announced that mean more people will be eligible for 30 hours free childcare (opens in new tab). That’s why it’s important to check exactly what you qualify for.

Goodto.com’s Money Editor, Sarah Handley (opens in new tab), says: “Family budgets are under so much pressure right now, which means it’s crucial to be aware of what government support you are eligible for, as well as how benefits like Universal Credit can help with childcare costs.”

How much does Universal Credit pay towards childcare? 

Generally, working parents can claim back up to 85% of their childcare costs if they claim Universal Credit (opens in new tab). This provides up to a maximum of £646.35 per month for one child, and £1,108.04 per month for two or more children. But Chancellor Jeremy Hunt has announced in his Spring Statement that these figures will be increasing to £951 for one child and £1,630 for two children.

To qualify, both parents will need to be working (or treated as being in work while on statutory sick leave or statutory maternity, paternity or shared parental leave) and your child must be under the age of 17. The benefit can also be claimed if a non-working partner:

• Has limited capability for work or limited capability for work and work-related activity, or
• Gets Carer’s Allowance or the Carer’s Element of Universal Credit, or
• Is temporarily absent from your household - for example, if they are in hospital or prison

To receive the childcare element of Universal Credit, your childcare must be with a ‘registered’ childcare provider. Usually this means your provider needs to be registered with OFSTED and it can include nurseries, preschools, after-school clubs, breakfast clubs, childminders, nannies and holiday clubs. The childcare element is paid up to the end of August following the child’s 16th birthday.

Although there is no rule for the number of hours you must be in paid work to qualify, the support can be reduced if it’s thought that your paid childcare costs are excessive for the number of hours you work. 

When is the childcare element of Universal Credit paid?

At the moment, the childcare element of Universal Credit is paid in arrears, which means you’ll need to pay your childcare provider first and then claim the money back. But Chancellor Jeremy Hunt has announced in the Spring Budget that this will change and that eligible parents will now see the childcare element paid upfront - although the timescale on this being rolled out hasn't yet been confirmed.

Right now, when you make your claim through your Universal Credit account, you will need to provide evidence of your costs such as a letter from your childcare provider or a bank statement showing how much you’ve paid. 

You can claim back up to three months of past childcare costs at a time, but if you’re claiming for more than one month you might not get all the money back. You can also claim back up to three months of future childcare costs at a time. However, these costs are paid month by month, not in one lump sum.

If you cannot pay for childcare upfront, you might be able to get help. Ask whether you can get support from the Flexible Support Fund as this does not need to be paid back. If you can’t, find out whether you can get an advance from Universal Credit (which will need to be paid back). 

Editor of nursery review site daynurseries.co.uk, Sue Learner (opens in new tab), explains: “The system is quite restrictive as parents who are already struggling financially have to pay the childcare costs upfront and then apply to claim the money back. Charities and the Local Government Association (LGA) have been campaigning for Universal Credit to be paid upfront instead of in arrears and the government has said it is looking at reforms.”

Can you get 30 hours free childcare and Universal Credit? 

If you receive Universal Credit, you can still get up to 30 hours free childcare (opens in new tab), provided you qualify. 

Sue Learner from daynurseries.co.uk (opens in new tab) says: “It is possible to mix two streams of funding as parents of three- and four-year-olds can still get the 30 hours free childcare and then if they need any hours on top of that, they can use Universal Credit to pay for childcare costing up to £646.35 a month.”

To qualify for 30 hours free childcare, both you and your partner (if you have one) must be in paid work. If you don’t qualify for the 30 hours, all families in England are eligible for 15 hours free childcare per week for three- and four-year-olds. 

However, you cannot claim Universal Credit and tax credits at the same time as tax credits are being replaced by Universal Credit for most people. If you currently still receive tax credits, you can claim back up to 70% of your eligible childcare costs for children under 16 (or 17 for disabled children). Depending on your income, you could get up to £122.50 a week for one child or £210 for two or more children. 

Crucially, if you receive either Universal Credit or tax credits, you won’t be able to use tax-free childcare (opens in new tab). If you open a tax-free childcare account, you will stop being paid your benefits.  

Claiming Universal Credit does not affect your eligibility for child benefit and this will continue to be paid separately. Child benefit is going up in April 2023 (opens in new tab) so you’ll get £24 per week for your first child and £15.90 per week for any children after that.

Do you get more Universal Credit if you have a child? 

Yes, if you qualify for Universal Credit and you have a child, you’ll get more money on top of your standard allowance. This is called the child element of Universal Credit and it applies to your first and second child. 

The child element pays £290 a month for a first or only child born before 6 April 2017 or £244.58 a month per child born after that date. These amounts are rising to £315 and £269.58 respectively from April 2023.

Does Universal Credit only pay for two children?

In most cases, Universal Credit only covers two children, but there are some exceptions. A spokesperson for comparison site Money Expert explains: “Exceptions include if a person has a multiple birth, adopts a child, the children are living in care arrangements with friends or family, or if someone has a child born as a result of a non-consensual conception. If the two-child limit applies and a third or subsequent child is born as a result of a multiple birth, all children in that birth will be eligible for support.”

Importantly, the two-child rule only applies to the child element of Universal Credit. It does not apply to the childcare element which is available for any child you are responsible for. 

Bear in mind that if you receive Universal Credit, you will still get the cost of living payment on top.