The taxation regime for childcare support has become very complex and it is difficult for parents to understand how different schemes interact according to analysis by the Low Incomes Tax Reform Group (LITRG), which is warning there is a risk this confusion may lead parents to make the wrong financial decisions on which support scheme or combination of schemes to use
The group made its comments as part of its response to the consultation on the delivery model for childcare free entitlement, which closed in early June. This outlined plans to increase the free childcare entitlement to 30 hours per week for parents of three and four year olds.
LITRG said childcare support is currently split across different schemes, administered by different government departments and includes tax credits, the planned tax free childcare (TFC), universal credit, free childcare entitlement and childcare vouchers.
LITRG said it is extremely concerned about the potential impact of an increase in minimum income limits for both the extended provision of free childcare and the delayed TFC scheme, as announced in the autumn statement 2015.
Anthony Thomas, LITRG chairman, said: ‘It is crucial that complete guidance is available that not only explains the rules of each childcare scheme, but also gives sufficient information to help people to choose between them and make the right decision. This information should be updated as often as necessary. There should also be a dedicated phone service in place that can answer questions and provide support on the range of childcare options.’
LITRG is concerned at how the increase in minimum income limits for both the extended provision of free childcare and the delayed TFC scheme will impact on parents who are self-employed and those who are employed on zero-hours contracts.
While parents who are paid a higher hourly rate may qualify for support by working a low number of hours per week, those who earn national minimum wage or national living wage will effectively have to work more hours to qualify for the same type of support - but those extra hours may not be available to them, the group says.
Thomas said: ‘We are very concerned at the potential unfairness of the increases in minimum income limits on those with low incomes and these ought to be addressed in order to be fair to everyone.’
The consultation, Childcare free entitlement: delivery model closed on 8 June, and details are here.
LITRG’s submission is here.
