Act fast on child tax-free perks
Parents are being urged to sign up for employer-sponsored childcare benefits as soon as possible, after Labour moved to axe the tax-efficient schemes.
As reported in last week’s Money section, the cost to the Exchequer of so-called “salary sacrifice”, which allows parents to pay for childcare out of pre-tax earnings, spiralled to £500m in 2008-9, up from £400m the previous year.
The government proposes to use the funds to provide 10 hours a week free childcare for children aged two to 16 from families on “low and modest incomes”.
Furious mothers flooded internet forums following the decision, which is likely to rob more than 450,000 families of £2,400 in tax relief a year.
What will be scrapped?
Most large employers operate a scheme that allows workers to buy childcare vouchers worth £55 a week — couples get £110 a week, or £5,720 a year — out of pre-tax earnings.
The vouchers can be used to pay for childcare up to the age of 16. The tax savings arise because parents do not pay tax or National Insurance on the income they have sacrificed.
Who is affected?
From April 5, 2011, tax-free vouchers will no longer be available to employers not yet signed up to a scheme. Those already in one have until April 5, 2015.
What if the Tories win?
The Conservatives confirmed they will not re-introduce the policy should the party win the next election.
Source: The Times online
Tags: childcare benefits
