Compensation & Benefits: Government issues concession on childcare vouchers, “not a U turn”

Estimated reading time 2 minutes

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.”

Commentary

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%.

For further information or to discuss the issues raised, please contact Guy Abbiss (guy.abbiss@abbisscadres.com) or Libs Davies (libs.davies@abbisscadres.com) on +44 (0) 203 051 5711.