Tax relief for childcare costs planned

childcare costs quater of income

childcare costs quater of incomeThe government are looking to implement plans that would allow parents to write off up to a third of their childcare costs against tax – potentially saving families hundreds of pounds a year.

An announcement is expected during the first week of January as Parliament looks to overhaul how childcare is provided and paid for. There is a consensus amongst all the political parties that something needs to be done as families struggle to cope with this soaring cost.

In 2011 the average British family spent 26.6% of their salary on childcare, compared to an average of 13% in Europe (in some Nordic countries such as Sweden, the figure is as low as 5%).

UK childcare costs went up by 6% this year, far outstripping the rise in most wages. According to The Daycare Trust, the average cost of childcare in 2012 was £112 a week (£5,376 a year).

As a result, it’s estimated that as many as one million women are absent from the workplace – as it makes more financial sense for them to stay at home to care for their children than to go to work and pay others to do so.

How would tax relief help?

Let’s assume you pay £5,000 a year for childcare and are a basic rate tax payer. If you could write a third of your childcare costs off against tax, you could probably expect to claim around £330 back from the taxman. (Bear in mind that this figure is a very rough back of the envelope estimate. In practice your tax relief payments would probably be affected by a number of other factors, such as whether you already claim things like child tax credits or childcare vouchers).

Are these changes definite, and will they apply to me?

No – this is all still to be confirmed. But according to BBC Newsnight, it’s very likely that the government will go ahead with making some childcare costs tax deductible (potentially up to a third of fees). Expect more details in the first week of January.

At the moment it’s also unclear how many people would qualify for this tax break and how it would be administered. For example, it’s possible that the scheme would be limited to basic rate taxpayers. Expect more news on this early in the new year – but hopefully 2013 will see many people’s childcare costs falling, rather than rising.

In order to help further bring down the cost of childcare, the government is also (more controversially) expected to outline a rise in the number of children a child minder can care for at one time.

As things stand, child minders are currently limited to looking after three children under the age of two in England.

Some argue that raising the number of children a child minder can look after at one time will drive down standards of childcare. Others argue that countries such as France have higher child to carer ratios than Britain without suffering a fall in quality of care – and that the most important thing is to attract better qualified staff to the childcare profession.

I’m really struggling with childcare costs now

Many families are in the same boat. While January will hopefully signal the start of real help for family budgets stretched to breaking point by childcare, there are things you can do now to cut costs. See our three ways to get help with childcare costs. You could get as much as 70% of your childcare costs back if you know when and how to claim.