Universal Credit Childcare Costs: How the 85% Element Works

If you are on Universal Credit and paying for childcare, you can get back up to 85% of what you spend, within monthly caps. It is one of the most generous forms of childcare help available, and it is also the one families most often fail to claim properly, because of one design flaw: you normally have to pay the nursery first and get the money back afterwards.

That gap is the whole problem. Here is how the element works, what the caps are, and how to deal with the upfront issue rather than being defeated by it.

What You Get

The childcare element of Universal Credit covers up to 85% of your eligible childcare costs, up to these monthly maximums:

Two things follow from those figures. First, the cap is on what you receive, not on what you spend, so the 85% only applies in full up to a spend of about £1,260 a month for one child. Second, the cap for two children is not double the cap for one, so a family with three children in nursery is likely to hit the ceiling.

Who can claim it

You have to be in paid work, or have an offer of paid work that is due to start before the end of your next assessment period. There is no minimum number of hours. If you have a partner, both of you generally need to be working, unless one of you is unable to because of a disability or health condition, is a carer, or is on maternity, paternity, adoption, parental or shared parental leave.

The childcare has to be registered or approved. That means Ofsted-registered in England, or the equivalent registers in the other nations. A registered childminder, nursery, after-school club, holiday club or breakfast club all count. A grandparent looking after the children does not, unless they are a registered childminder caring for the child outside your home.

You can claim from the point childcare starts up to the September after the child turns 16.

The upfront payment problem

Universal Credit reimburses. You report what you have paid, and it is included in the payment for that assessment period. A nursery, meanwhile, wants a deposit plus a month in advance before your child sets foot in the building.

For someone moving from unemployment into work, that is often several hundred pounds they do not have, at exactly the moment they have no income yet. It is a well-documented barrier and there are two routes around it.

The Flexible Support Fund. Ask your work coach. This is a discretionary grant from Jobcentre Plus that can cover upfront childcare costs when you are moving into work or increasing your hours. It does not have to be paid back. It is discretionary, which means you have to ask and you have to make the case, and plenty of people never hear of it because nobody volunteers it.

A budgeting advance. This is an interest-free loan repaid from future Universal Credit payments. It helps, but it reduces your payments for months afterwards, so treat it as second choice behind the Flexible Support Fund.

Reporting costs: the bit that goes wrong

You report childcare costs through your online journal, and you need proof: an invoice or receipt showing the provider, the dates, the child and the amount. Get into the habit of uploading it the day you pay.

The rules on which assessment period a cost falls into are stricter than people expect. Broadly, you report a cost in the assessment period in which you paid it, or the one after. Leave it longer and you can lose it entirely. There are limited grounds for a late report to be accepted, and relying on them is not a plan.

Two practical habits that prevent almost all of the trouble:

• Know your assessment period dates. They run monthly from the date you claimed, not from the first of the month. Payment usually arrives seven days after the period ends.
• Report every month, even if nothing changed. Costs are not carried forward automatically.

A worked example

Say you work part time, your child is at nursery three days a week, and you pay £620 a month.

Now say your child is also entitled to funded hours, which cut the invoice to £230 a month. You claim 85% of £230, so £195.50, and your net cost falls to £34.50. Funded hours and the Universal Credit childcare element work together, and you should be claiming both.

Universal Credit or Tax-Free Childcare?

You cannot have both. Opening a Tax-Free Childcare account stops your Universal Credit childcare element, and it is not a decision to make casually.

The arithmetic is usually straightforward. Universal Credit gives you 85% back. Tax-Free Childcare gives you 20%. On costs of £620 a month, that is £527 against £124. For anyone eligible for the Universal Credit element, it is almost always the better option.

The complication is that the childcare element is part of your overall Universal Credit calculation, and how much extra you actually receive depends on your earnings and the taper. If you are close to the point where your Universal Credit award tapers to nothing, the picture changes, and it is worth getting the sums checked by a benefits adviser rather than guessing. Citizens Advice does this for free.

Common reasons a claim gets refused

• The provider is not registered. Check the registration number before you start, not after.
• No evidence uploaded. A bank transfer alone is not enough; you need something from the provider showing what the payment was for.
• Reported too late. The single most common reason.
• Costs for a period after childcare ended. Payment in lieu of notice to a nursery is often not treated as an eligible childcare cost.
• Deposits and retainers. Treatment varies, so ask before you assume a deposit will be reimbursed.

If you disagree with a decision

Ask for a mandatory reconsideration within one month of the decision, through your journal or by phone. Say specifically what you think is wrong and attach the evidence. If that is refused, you can appeal to an independent tribunal.

Get help rather than doing it alone. Citizens Advice runs the Help to Claim service for Universal Credit, and local welfare rights teams will often take on a reconsideration. Both are free.

Worth doing even if the sums look marginal

Parents sometimes decide childcare costs make working not worth it, and then never check the figures. Between funded hours and the childcare element, the net cost of a nursery place can be a fraction of the headline fee. Work it out properly before deciding.

The childcare cost calculator will give you the before-and-after on your own numbers, and the guide to UK childcare costs explains how the schemes stack. If your circumstances mean Tax-Free Childcare is the better route after all, the Tax-Free Childcare article covers how that one works.