Finance Bill targets childcare tax abuse

Well off parents who take advantage of employer-supported childcare (ESC) schemes to reduce their tax bills will be hit by a measure to be included in the Finance Bill 2011.

Draft Finance Bill clauses published on 9 December will restrict income tax relief for higher rate and additional rate taxpayers by reducing the value of the income tax exemption they can claim for ESC and Childcare Voucher schemes.

Conceived by the previous government, the measure is intended to reduce the tax reliefs gained by higher rate taxpayers under childcare vouchers and salary sacrifice schemes. Schemes that extended benefits to music lessons and the like have not helped the parents’ or providers’ cause.

The measure will only apply to individuals who join such schemes on or after 6 April 2011. Employees who already claim marginal rate relief on an existing childcare scheme can continue to do so and workplace nurseries will continue to offer tax-free benefits provided they fulfil the necessary conditions.

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