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Childcare revamp is unworkable, says CIOT

16 February 2011
Categories: News , childcare , childcare vouchers , CIOT , LITRG , Employees , Income Tax
'Plans contradict government's aim to be fairer'

Plans to restrict tax relief for employer-supported childcare are unworkable and would needlessly create additional complexity and unfairness in the system, tax advisers have claimed.

The Chartered Institute of Taxation (CIOT) and its Low Incomes Tax Reform Group (LITRG) arm have both criticised the proposals in their responses to an official consultation ahead of next month's Budget.

‘The existing rules for tax exemption on employer-supported childcare are well established and relatively simple’ while the mooted changes would ‘introduce a significant administrative burden’ for firms, claimed Colin Ben-Nathan, chair of the CIOT’s employment taxes sub-committee,

He went on to criticise the government for contradicting its stated ambition to simplify the tax system and make it fairer. The childcare revamp ‘will give some people more or less tax relief than others in similar roles and with similar incomes… it therefore fails on both counts’.

The LITRG’s technical director, Robin Williamson, said, ‘From a low-income perspective, it is often better to claim help with childcare costs through tax credits instead of taking childcare vouchers.

‘Making the right decision has always involved complex calculations, often made more difficult by poor information from HMRC and voucher-providers. The proposed changes will make interactions even more complex.’

The LITRG is calling for a full review of childcare proposals and policy across government, with the aim of creating a system that people are able to easily understand, and one that provides workers with certainty that they can meet their childcare costs without an unwelcome tax cost.

Mr Williamson denounced the mechanism proposed for restricting tax relief on employer-supported childcare as ‘unworkable’ and depending on a ‘back-the-envelope calculation of income’.

He also expressed ‘strong concerns’ that the model might be used in future to restrict other reliefs, such as the proposed withdrawal of child benefit from higher-rate taxpayers.

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