2 July 2015
Tax-Free Childcare scheme delayed until early 2017
The Government announced on 1 July 2015 that the new Tax-Free Childcare scheme, initially due to start in October 2015, will not begin until early 2017.
While the delay is disappointing, it provides an opportunity for work to be done on the more difficult parts of the scheme, particularly the interaction between TFC and other forms of childcare support and we urge HMRC to use the delay to ensure that detailed guidance and tools are in place for when it is launched to help people make informed choices.
Tax-Free Childcare (TFC) was first announced in 2013. The scheme will operate through TFC accounts and for every 80 pence paid into the account, the Government will add 20 pence up to a maximum of £500 per child for each 3 month entitlement period. The scheme was due to be implemented from October 2015.
The Government attributed the delay to a legal challenge which focused on the decision to appoint National Savings and Investments (NS&I) as the childcare account provider. As NS&I use a private company, Atos, to run their operations, it was argued that the Government should have put the running of the childcare accounts out to open tender. The Supreme Court has now ruled that the Government’s decision was not unlawful, and has set aside an interim order which prevented implementation of the scheme. This means that the scheme can now go ahead.
Since the scheme was first announced, LITRG have raised concerns about the interaction between TFC and other childcare schemes and highlighted many times the difficult and sometimes complex decisions that people will face in trying to decide whether to join the TFC scheme or stay with their existing childcare support through tax credits, universal credit or childcare vouchers.
People who will receive TFC will not be able to continue to receive tax credits or universal credit. TFC will also replace the existing tax and NIC reliefs for employer-supported childcare (often referred to as childcare vouchers), although those already claiming childcare vouchers will be able to continue receiving them.
Under the rules as they stand, detailed guidance will be essential and it will have to be long and complex if it is to deal with the very wide range of personal and financial circumstances.
We urge the Government to take the opportunity to consider the impact of TFC as currently drafted and to examine carefully the full range of interactions. There is an opportunity to re-examine the legislation to try and smooth some of these interactions and to make sure that detailed guidance and supporting tools are in place to allow individuals to make informed decisions about which scheme they should use.