Compensation & Benefits: Government issues concession on childcare vouchers, “not a U turn”
In our previous newsletter, we reported that the Government was
planning to remove the existing tax and National Insurance Contributions
(NICs) exemptions on childcare vouchers (see link to article in
Resources below) from 2011.
Following heavy lobbying from MPs, the Government has conceded its
original proposals and issued new proposals for childcare vouchers. Tax
relief will be retained for existing users of the scheme. However,
from 2011, new entrants to the childcare vouchers scheme, including
higher rate tax payers, will only obtain tax relief at the basic rate.
Figures detailed in the media suggested that nearly 100,000 people
signed a petition on the 10 Downing Street website, objecting to the
proposed withdrawal of tax relief and a parliamentary motion was also
signed by MPs.
Patricia Hewitt explained that “the new policy would allow the
Government to continue to give families tax relief on their childcare
costs but in a fairer way than the current system.”
Existing taxpayers using the scheme will continue to retain the tax
relief currently available to them. An existing higher rate taxpayer
will therefore continue to obtain relief at 40% (or 41% including the
NICs) on the costs of childcare.
However, from April 2011, any new users of the scheme will have tax
relief restricted to basic rate relief at 20%.