Tax breaks for employer-provided childcare vouchers were introduced with a fanfare. An employer introducing a childcare voucher scheme had, by law, to offer it to all employees so it certainly seemed as if the government thought it would benefit all employees.
The reality was that, due to the way the income tax and national insurance rules interacted with tax credits, it was primarily a scheme to benefit the rich and not the poor.
One does wonder whether this outturn was just as much a surprise to Ministers as to ordinary mortals.
LITRG identified the risks for those on lower incomes in our articles in 2005 and 2006.
HMRC has now produced an updated online Helpsheet which explains the risks of taking childcare vouchers. The calculations that have to be made by most people on modest incomes and modest childcare costs are still mind-blowing; that alone might deter many people.
This Helpsheet will not assist those who have lost money in the last two years through mistakenly taking vouchers, although with employer co-operation some may be able to back out half way through this tax year. Hopefully, the new advice will now be widely published by employers, childcare voucher companies and childcare charities.
What else should HMRC do?
As our earlier articles show, it is impossible for people on low to middle incomes to know, without doing the sums, whether or not they will be better off taking vouchers. The calculation is anything but easy, and HMRC should at the very least provide an on-line calculator.
The vouchers or tax credits question is not the only hidden trap in the complex world of tax breaks on childcare. We also strongly recommend that HMRC provide a specialist childcare helpline to advise the many who need guidance in this area.
Contact Name: John Andrews (Tel: 0844 579 6700, Fax: 0844 579 6701)