The government announced earlier this year that it intends to change the basis on which working parents receive tax relief on qualifying childcare. We published a blog about this a little while ago and since then, some more details have emerged. What has made the headlines though is the revelation that less than one third of employers consider the move to be a good one.
The new system will not be open to stay at home mums and many have criticised it for being too generous to high earners.
A consultation period begins shortly and we’ll provide details of this so that you can have your say.
Here are some of the details we published in a previous blog:
Currently, employees are able to join schemes at work allowing them to receive tax-free childcare vouchers for childcare up to the age of 5, or for spending in after-school/holiday clubs. The tax relief is restricted depending on when an individual joined the scheme and the rate of income tax being paid.
This is all due to change following announcements in the Budget 2013.
The current scheme is available to employers only (so not available to the self employed) and will be phased out and from 2015 replaced by 20% tax relief on childcare costs up to £6,000. This relief is per child and applies where both parents work (or where a single parent works) and each individuals earns less than £150,000. Initially, the relief will apply to children under 5 but will be extended to children under 12 eventually.
The new system will be open to the self employed but will be restricted for those claiming tax credits/universal credit.
Employees who are additional rate taxpayers and joined an employer’s scheme on or after 6 April 2011 are restricted to £25 per week in tax free vouchers. Higher rate taxpayers are restricted to £28 per week. This was increased from 6 April 2013 to take account of the reduction in the additional rate from 50% to 45%.
Curo May 2013.