A new tax-free childcare scheme was announced by the U.K. government on March 18, 2014. This measure will potentially affect employees working outside the U.K. whose families remain living in the U.K. and where the spouse also works.
A new tax-free childcare scheme was announced1 by the U.K. government on 18 March 2014, in advance of the 2014 Budget Statement. The proposals announced contain changes as compared to what had been articulated in the Autumn Statement2 in response to the consultation3.
The new scheme will be introduced from autumn 2015 and will be phased in over a period of seven years. Eligible families with children under five will stand to benefit when the scheme is rolled out. A change from the original proposal has children under 12 being included in the first year.
From announcements made both in the 2013 Budget and from the documents published with the 2013 Autumn Statement, it has become clear that the U.K. government believes that the costs associated with childcare act as a “significant disincentive to work.” A scheme to provide tax relief on childcare costs to assist with this burden will be introduced.
If subject to taxation in the U.K., taxpayers who are parents with children – including those who are on international assignment in or outside of the U.K. – will benefit from this “simplified scheme” in terms of their childcare costs. The aim is to enable such parents with children to work rather than to claim benefits. It is designed to help middle- and low-income families, but will not be available to assist high earners.
This measures will potentially affect employees working outside the U.K. whose families remain living in the U.K. and where the spouse also works. There are also potential consequences for employers in terms of administering the scheme for their employees and employers will need to consider how the scheme could operate where individuals are not working and potentially not paid from the United Kingdom.
Initial plans to assist families with the costs of childcare by giving basic rate tax relief on a proportion of the costs of childcare were announced in the 2013 Budget4 and a consultation on the design and operation of that scheme was launched. Further details on the scheme and on how the relief would operate were announced in the Autumn Statement.
In order to be eligible for the scheme:
The legislation to enact the proposed changes has not yet been published. The legislation is expected to be published on 27 March 2014.
KPMG welcomes the increase in value of the childcare allowance announced yesterday. The measures announced introduce a substantial relief for working parents, could encourage employment, and may remove the barriers that serve to restrict the talent pipeline that Britain's businesses need to succeed.
The question that remains is how far employers and their staff will go to ensure this scheme works? People tend to perform better when they feel supported by their employers, so the extent to which employers back the program will be a key measure of its success.
2 For prior coverage of the Autumn Statement, see Flash International Executive Alert 2013-161, 6 December 2013.
4 See Flash International Executive Alert 2013-052, 21 March 2013, p. 5.
The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom.
© 2016 KPMG LLP, a United Kingdom legal liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.