The Government announced earlier this week that tax relief for childcare will be extended to self-employed as well as employed parents from April 2015. The amount of tax relief available per child will increase substantially.
Mark Groom, tax partner at Deloitte, said: "Existing relief from tax and National Insurance contributions (NIC) for workplace nurseries will continue unaffected. However, childcare vouchers issued after April 2015 will cease to qualify for relief, while those already issued before that date should also be unaffected."
The new scheme will provide basic rate tax relief on up to £6,000 of childcare per child, providing both parents are working and their earnings do not exceed £150,000 each. In the first year only children under five will qualify, but it is proposed to extend the new scheme to up to 12-year olds over time.
Groom added: "In April 2011, the Government restricted tax relief for employees on childcare vouchers to broadly £11 a week regardless of income. Since then, relief from NIC has been worth another 44 pence to £6.60 depending on earnings levels. It looked like tax relief for childcare would eventually be withdrawn, but not many people expected it to be replaced with something even more generous. However, this now seems part of the Government's agenda on helping parents get back to work."
At a basic rate of 20%, the new tax relief will be worth £1,200 per qualifying child and a total cost estimated at £1.4bn per annum. The new scheme may not provide relief from NIC as well, but the relief will still be worth roughly double the existing childcare voucher scheme savings from the closure of which are estimated to be £600m.
"It seems that individuals will be required to pay for their childcare and HMRC will separately provide a basic rate tax credit. The new relief will, in effect, be facilitated through childcare providers rather than through employers as under the current voucher system," said Groom.
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