By Daniel Hunter
Tax partners at the chartered accountants HW Fisher & Company are calling on the Chancellor to unlock the potential of thousands of new parents who are prevented from returning to work by Britain’s confusing and expensive childcare system.
The UK may be enjoying record levels of employment, but many of the 8 million Britons working part-time are parents of young children who cannot afford to work full-time because of the high cost of childcare.
It’s nearly seven years since the introduction of Childcare Vouchers, a scheme that allows parents to exchange part of their gross salary for childcare without paying tax or National Insurance. In all that time, the amount they can exchange has remained capped at £55 a week.
“In many parts of the country, £55 won’t even cover the cost of one day in a nursery. Such a low cap renders the vouchers all but pointless," Toby Ryland, corporate tax partner at HW Fisher & Company, commented.
“They are failing in their goal of giving the parents of young children a helping hand with childcare, and getting them back to work.
“Far better to allow employers to pay employees' childcare costs directly to the childcare provider free of any National Insurance costs for both employee and employer. This would reduce the cost by approximately 25% for a basic rate taxpayer (less for a higher rate taxpayer) with the net payment being a taxable benefit. This would be simple to administer, making it more attractive to employers, and would benefit all employees.
“But crucially it would also give the employee an incentive to work more days, and this will give a much-needed boost to the economy.
“The amount the Treasury lost in National Insurance contributions would be more than offset by the extra Income Tax receipts it would gain from the extra numbers able to work full time.”
Mr Ryland also urged the Chancellor to use his budget to “sort out the Child Benefit mess.” A rule change in January cut the entitlement to the benefit of 1.2 million families in which one parent earns more than £50,000.
“The prospect of a million parents now having to complete a tax return just so they can be stripped of the Benefit makes no sense. The admin costs of processing the extra mountain of tax returns risk cancelling out the savings,” he added.
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