Childcare and Childcare Vouchers - Further changes to the definition of ‘qualifying child care’

Written by Ian Congreave - Filed under: Childcare, Expenses and Benefits, Other benefits (M) on November 4th, 2009

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Sections 270A and 318A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) provide limited tax exemptions for the provision of childcare vouchers and employer-supported childcare. One of the conditions that must be met in order for these exemptions to apply is that the childcare must be “qualifying child care”. The definitions of “qualifying child care” are complex and are different for each country of the UK. Equivalent definitions are also used to determine entitlement to tax credits.

New regulations amend the definitions to reflect the introduction of the Looked After Children (Scotland) Regulations 2009 and the need to align further the criteria for qualifying childcare between ITEPA and the Tax Credit Regulations.

The changes relate specifically to childcare provided by foster parents. Other than in specified circumstances, “qualifying child care” does not include care provided by a foster parent in that person’s home. The changes clarify these rules in each country of the UK.

As the definitions of “qualifying child care” are so complex, it is very difficult for employers to check whether the childcare or childcare vouchers they provide meet the definitions. For this reason, it is common for employers to use commercial schemes to provide these benefits, leaving it the schemes to ensure compliance.

HMRC explains the rules in Employer Helpbook E18 How to help your employees with childcare and in Booklet IR115 Paying for childcare. Telephone numbers are provided to obtain further guidance where needed. It normally takes HMRC several months to update and reissue these booklets.

Further information:

The Income Tax (Qualifying Child Care) (No. 2) Regulations 2009

Explanatory Memorandum to the Income Tax (Qualifying Child Care) (No. 2) Regulations 2009