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Leave childcare vouchers unchanged

Comment 27th July 2010

The Labour Government announced plans to cap the savings from childcare vouchers for higher-rate taxpayers.  These plans were included in the Coalition's Budget.  If the changes go ahead, higher-rate taxpayers will save around £600 a year from childcare vouchers, while basic-rate taxpayers will continue to save around £900 a year. 

The proposed change will require employers to assess each parent's income at the start of each tax year.  Having made this assessment, they will then need to determine whether parents are entitled to the basic-rate allowance (£55 per week) or the higher-rate allowance (£28 pw).  Any changes to employees' voucher orders will then need to be processed between the start of the tax year and the April payroll run, to avoid employees receiving more vouchers than they are entitled to.  This proposal is going to cause an unnecessary administrative burden for employers, at a time when the Government is supposed to be trying to cut red tape.  Many employers may feel the proposals are virtually unworkable.

In addition, the proposed changes will penalise employees who temporarily stop receiving childcare vouchers, for example while they go on maternity leave, as well as having an adverse effect on employees who are currently receiving childcare vouchers but who move to a new employer after April 2011.

The savings generated by the proposed changes are relatively small, so I would suggest that the Government would be wise to retain the status quo and to scrap the proposed changes.

Why does this matter?

By leaving childcare vouchers unchanged, the Government will avoid imposing a new administrative burden on employers, while at the same time showing support for working parents.


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