Tax-free childcare proposal must be seamless and straightforward - LITRG Press Release

Published on 15 October 2013

The LITRG has responded with a qualified welcome to the Government’s proposal on tax-free childcare. The LITRG have said that any new scheme must operate seamlessly with the childcare element of universal credit, be simple and clear to operate and allow people to choose whichever system is best for them financially.

At Budget 2013, the Government announced that they would introduce tax-free childcare for working families. The scheme is intended to support working families by giving support equivalent to basic rate tax relief on money spent on childcare. Though supportive of the proposal’s intention, the Group have stated that any new scheme must be easy for both parents and administrators to understand and operate, and must strike the right balance between responsiveness and simplicity.

Anthony Thomas, chairman of LITRG, said:

“The Government are right to point out that the high costs and the availability of childcare are two of the biggest challenges that parents face. We agree that the costs of childcare can be prohibitive to parents looking to enter the workplace or increase their hours. It is clear that this issue needs to be addressed in order to improve work incentives for parents. But where it is proposed that two schemes should operate side by side, there needs to be seamless interaction between them; key definitions for example, need to be consistent. A lack of consistency will inevitably result in complexity, worry and confusion for parents and those advising them, and the scheme will turn out to be massively expensive to operate.

“The proposal to increase childcare support through universal credit to 85% for lone parents and couples who earn above the income tax threshold is simply unfair, as those who earn less will receive only 70% in support. This is almost certainly unworkable and will damage work incentives for some of the lowest paid. The fact that income tax is annual and universal credit monthly means it will be impossible to determine who is or is not a taxpayer at the point when childcare costs are paid and universal credit claimed. In addition, the rise of zero-hours contracts, part-time and agency working will make the situation even more unpredictable for many which surely cannot be right or fair.”

HMRC's consultation, Tax-free Childcare, can be found here.

The LITRG response can be found here.

(15-10-2013)

Contact: Robin Williamson (please use form at http://www.litrg.org.uk/ContactUs)