Childcare vouchers – crèched by Government?
November 16th, 2009Gordon Brown announced significant changes to the current Childcare voucher system in his closing speech to the Labour Party conference at the end of September but last week the story became a major news item. So what exactly is happening? Read on for the latest facts.
Exact details of the changes will be announced in the pre-budget speech which will take place on Wednesday 9th December (12.30pm).
What is happening for current users?
Existing voucher users will not be affected until April 2015, when voucher exemptions will be withdrawn completely. These changes affect childcare vouchers only, not workplace nurseries.
A statement from HMRC said: “The government is not abolishing childcare vouchers, only phasing out tax relief for them. Vouchers are now well entrenched, employers will still be able to offer them, and existing users will be unaffected for five years.”
What is happening for new subscribers?
From April 2011, employees joining an employer-sponsored voucher scheme will not receive the current tax exemptions.
The government said that tax relief for vouchers does not deliver against its priorities because it feels it is not fair that about one-third of tax relief for childcare goes to 6% of higher-rate tax paying parents.
Similar justification was used to justify the restriction recently placed on higher-rate tax relief for pension contributions, although this was reduced rather than stopped completely and was aimed solely at individuals earning £150,000 plus.
Labour ‘to listen’
Back in September Gordon Brown said “I am proud to announce that by reforming tax relief we will by the end of next Parliament be able to give the parents of a quarter of a million two-year olds free childcare for the first time.”
Since those plans were announced over 80,000 people have signed a Downing Street petition urging the maintenance of the tax breaks and 50 Labour MPs have backed a Commons motion warning against the proposals.
Currently parents can receive up to £243 of their respective monthly incomes as childcare vouchers which are deducted before the residual income is subject to Income Tax and National Insurance which can be worth up to £2,400 a year per family, a saving of 31% for basic rate tax-payers and 51% for higher rate ones.
