Childcare taxes 'complicated' for families

Date: 7th December 2009

Tax credits could be a preferable alternative to childcare vouchers for many parents, the Low Incomes Tax Reform Group (LITRG) has claimed.

Reports suggested last week that the government could be reducing the tax relief on childcare costs for families who paid the higher rate of income tax.

However, LITRG pointed out that it would make more sense for many those on low incomes to not use the vouchers at all and then have the costs subsidised by tax credits.

An example put forward by the organisation was for a family which paid £155 per week on childcare and got back £55 in vouchers, leaving £100 left for which to claim credits on.

Those who do not use the vouchers can use the whole £155 for the subsidy.

However, LITRG conceded that there were certain National Insurance and tax gains exclusive to the vouchers, meaning that individual families needed to make a "complicated calculation" to work out their optimum strategy.

John Andrews, the group's chairman, said: "There is precious little information to help people make the right choice between vouchers and tax credits.

"Both the government and the voucher companies are failing to provide people with the information they need to make the right decision for themselves."

Further announcements on the child voucher plans are expected during the chancellor's Pre-Budget Report, which takes place on Wednesday (December 9th).

Posted by Thomas Fletcher