Poorer Families Miss Out On Childcare Tax Break

RED TAPE means parents working for small businesses could be paying more for childcare than their counterparts in big companies, it was claimed yesterday.

Business leaders said so much bureaucracy surrounds the Government’s childcare voucher system that only large companies took part in it.

The scheme removes childcare payments from an employee’s pay before tax is calculated, saving them hundreds of pounds a year in tax payments. In effect, the vouchers cut the cost to parents of having a nursery or childminder look after their children while they work.

But parents working for small businesses have found their employers unwilling to take part in the voucher scheme.

And parents working for low wages could also be paying more for childcare than salaried professionals. Those earning the minimum wage are not allowed vouchers because their pay would then drop below the legal minimum.

Self-employed people are also missing out, because the time involved in administering the voucher system could outweigh the benefit.

The situation is a particular problem in Wales, where small businesses account for an unusually high proportion of employers – and it emerged this week that the cost of childcare has risen faster in Wales than in England or Scotland. A year’s full-time nursery place now costs £7,384 on average in Wales.

Childcare is said to affect economic inactivity in the South Wales Valleys, where some parents may remain on benefits because of the proportion of their wages they would otherwise spend on childcare.

One Valleys nursery said yesterday the vouchers were unavailable to most of its clients, three years after they were introduced.

Nicola James, who runs the Stepping Stones creche in Aberdare, said, “I’ve got some people on vouchers, but it’s very few in my area.

“I don’t know if they’ve got the high-paying jobs in the Cynon Valley. I feel there should be help for the parents who are prepared to go to work and put their child in with us.”

Debbie Davies, 32, who works for a small business in the Cynon Valley, said she had asked her employer for vouchers towards the cost of leaving her one-year-old son in a creche.

“They just said, ‘No, we can’t do it’. I would save a lot of money if I could pay with vouchers,” she said.

A registered childminder in Rhondda Cynon Taf, who did not wish to be named, said, “The parents on lower pay are the ones who aren’t successful in getting these vouchers. The ones who are earning more are in big companies, where these vouchers are available.

“The parents who really need help don’t get it and the ones who can afford the childcare get the extra support.

“I’ve got professional parents, both doing fantastic jobs, both working for the same company. They’ve got the one child but both parents can use the vouchers.”

Another of her clients worked in a launderette for the minimum wage, “All she can claim is working parents’ tax credit.” Russell Lawson, of the Federation of Small Businesses in Wales, said, “Businesses of any size can set up a voucher scheme, but it involves having the correct paperwork and registering with HM Revenue and Customs.

“There’s an administrative burden which prevents small businesses doing it.

“Small businesses don’t have HR [human resources] departments. If you’re self-employed, you’ve got to do the VAT returns, the tax returns and everything else to support the business. A voucher scheme could save you up to £1,000 a year, but it’s probably going to cost you more than £1,000 in management time to set that up. Businesses of under five employees should have a far more straightforward system that doesn’t require so much administration. That would probably encourage more businesses to do it.”

Nobody was available at HMRC, the Department for Children, Schools and Families or the Treasury yesterday to defend the vouchers scheme.