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Does this mean the Tax-Free Childcare scheme is not ready to replace childcare vouchers?

On March 16 2018, HMRC’s Tax-Free Childcare Stakeholder Engagement Team issued an announcement to certain stakeholders to notify them of the news that childcare vouchers will remain open to new entrants for an additional six months. 


The announcement, issued in a newsletter, covered the detail of change and what parents and employers need to know. The newsletter can be seen here.


Before the announcement, schemes were due to close to new entrants on April 6 2018 therefore the last date of joining was April 5 2018.


The UK government climbdown was announced by Education Secretary Damian Hinds at the end of a House of Commons debate on March 13 2018.


It is a simple announcement that seems to infer that the Tax-Free Childcare scheme is not ready to take the place of childcare vouchers. Of course, this is a policy that is under the control of HM Treasury and HMRC, so it was a considerable intervention of another department to prevent a UK government defeat on the Statutory Instruments that were being debated.


However, there are some questions that need answering and I attempt to do this:


What about directly-contracted childcare?


The announcement was about childcare vouchers only. These are commonly provided via an Optional Remuneration Arrangement where the employee contractually agrees to sacrifice salary in exchange.


Directly-contracted childcare is different but still falls under the Employer-Supported Childcare banner and was due to end after April 5 2018. This arrangement is where an employer establishes an arrangement with a registered or approved childcare provider and pays them directly. Essentially, the employer purchases a childcare place.


With no announcement being made about directly-contracted childcare, it took quite a bit of "talking to the right people" before HMRC’s Tax-Free Childcare Stakeholder Engagement Team confirmed that the announcement also applied here as well.


Extension to October 5 2018 then?


We assume so! With its announcement on March 13 2018, the UK government has forced HM Treasury and HMRC into a corner. As Labour MP Angela Rayner said to Hinds on March 19 2018: "The Secretary of State has given us no clarity on what will happen next’. In response, Hinds said that the extra six months would be used "to look into transitional considerations".


Not quite sure what that means…


Can this be done legislatively?


There are a number of regulations that all stem from the Childcare Payments Act 2014 saying that Employer-Supported Childcare (vouchers and directly-contracted) all cease from the end of this tax year. These regulations also state that eligibility to enter Employer-Supported Childcare ceases at the end of this tax year.


There will have to be a quick raft of extended entitlement or transitional regulations in double-quick time. Although, given the fact that we have already had a lot of these already, these should be relatively easy to draft.


The message?


Keep calm and carry on – for the time being. Nothing is changing and new entrants to Employer-Supported Childcare schemes can continue on and after April 6 2018 for six 6months at least.


For employers that have already closed their schemes or have drafted communication to employees, this has all been a costly exercise. Once again, it is employees and employers that are counting the cost of a late change in UK government policy. Also, spare a thought for HM Treasury and HMRC who have been unable to get a working Tax-Free Childcare scheme in place – at least they have a bit more time.





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