Childcare and the tax system - fascinating thread title! - but I'm genuinely interested(131 Posts)
I've recently become self employed and have found that I can deduct pretty much anything to do with my work from my tax bill, bar childcare costs. Given that childcare is pretty much a fundamental to working, if you have children, easily as much so as petrol or car insurance or a printer cartridge or whatever it might be, why is it not allowed as a business cost? (Sorry if have the jargon wrong).
This is also linked to what I thought at the time of the MP expense scandals. They were claiming legitimately for all sorts of things - cars houses duck houses decorating you name it. There was a female MP though who got told off for claiming for her nanny. Claiming for her cleaner, or gardener would have been fine. But not the nanny, and no-one in the papers seemed to question this rule. Surely in terms of enabling a woman to work (or enabling both parents to work if we want to put it properly!!!), a nanny or other childcare is absolutely essential. But it's not allowed.
Does anyone know WHY?
My guess is tradition, systems being set up to serve men, and possibly expense.
Has anyone ever questioned these rules, and if so does anyone know what the official response is? Because when you look at it without the filter of current practice on, it is totally illogical. It makes no sense.
I'm going out for a bit now but will be back later to peruse!
This question is pretty fundamental actually, I think.
Fundamentally, I suspect it's because men had wives to do that job and no-one ever thought of it being any different.
In practice, how would you see it working? If you had a partner who was also earning (but not self employed) would you claim half your childcare expenses - as half would be your partners? Would it need to be tied into OFSTED registration to stop people "paying" their mothers/partners for looking after the children?
There's no way it'll happen in the short term as the present government seem to be determined to remove the only childcare tax break there is (in the form of vouchers) - and of course the self-employed could never claim those anyway (which was disgraceful).
On the expenses scandal - the logic is to do with "needing" to keep a second home because of the need to live in both their constituency and London. Most of the "legitimate" expenses are in regard to keeping the second home. Gardeners etc. could not be claimed for the MP's primary residence that they theoretically would need to maintain regardless of their job. A nanny is not an expense linked to keeping a second home so not considered equivalent to a gardener by the rules.
Generally I would agree with childcare being deductible except I think it would result in a net gain by those who are already well-off and consequently a loss for those less well-off. Would prefer to see sufficient high quality state funded care available for everyone who wanted it instead.
Suzi I'm fairly sure it will never happen, but pleased to see that your idea of why it is set up like this in the first place tallies with mine! I'm not sure how it would work in practice but it wouldn't be that difficult I don't think. At the moment eg I know my dad claimed a proportion of the household bills for his work from home and it could quite easily fit into that.
suchprospects I was thinking about the higher rate taxpayer thing on the way round the shops Everyone got in a lather about it with childcare vouchers I know. But (and speaking here as a bit of a a lefty) why should that be? If the idea is that you are allowed to pay for childcare out of your pre-tax income then that just makes sense. If you are self-employed presumably the things that you offset benefit you more if you are HRT in the same way but no-one is having a coronary about that. In a way I think I'd be pretty happy to ignore that inequality if it meant that childcare could be counted as a valid business expense / taken from pre tax earnings across the board. The way to look at it surely is that the less well off and the more well off all gain the same in terms of how their childcare costs are treated. Some gain some, some gain more. If the alternative is that childcare is not deductible then everyone loses IYSWIM.
Also agree that high quality state funded childcare for those who want it is the holy grail of this subject area.
Mind you that would really never happen. Presumably women would have to prove that they were going to be working while the free childcare was happening, rather than sitting in front of jeremy kyle, smoking and drinking cider. Just thinking of the DM objections!
"Some gain some, some gain more."
The thing is it's a semi-closed system. We won't all gain, even if there is somewhat greater output because we have women creating wealth there's still going to be net tax that isn't going into the system. That means either we spend less or we take it out somewhere else. That's likely to hurt the lower paid.
I think it would mean fewer professional women would be SAHMs. That might mean more women doing better in the workplace which would be good.
I don't think "The Holy Grail" can be sold on the basis of freeing people up for work. It doesn't make sense to provide free childcare so that people can go out to work in a shop job. It has to be more about providing a high quality foundation for life.
I am prevaricating on even that though. I have been thinking more lately about how government subsidies for childcare (including the holy grail) effectively pressurize people into living life in one particular way. In this case it's a way I like, but I am becoming less comfortable with pushing it on others.
You can't claim for your lunch, for the clothes you wear, or for commuting costs from your home to your place of work. All of these could be considered "fundamental to working" for most people. If childcare were allowed, why shouldn't these (and other expenses) be allowed too?
I think the thing is if you start designing a system of tax relief for childcare and you work through all the issues: the how do you divide it between two parents issue, the how do you stop it taking money from the poor and giving it the rich issue, the how do you stop people claiming they are 'paying' their mother/partner etc...issue what you end up with is the WTC system we already have.
I suspect they went through the same thought process.
Cakeretention one of the major differences between between bringing up children and commuting to work is that bringing up children adds to the wealth of the nation. It used to be that children were a net economic good for a family - once they were productive they brought wealth into the family. But with changes to our culture (which include legal changes) they have become an economic good for the country but a drain for the family who brings them up.
The main reason I see for providing tax benefits is to make it easier for women with children to work outside the home, helping them develop their careers, stay financially secure and exercise power in the non-domestic realm the way men do. At the moment our culture seems to be weighted against women doing this. It doesn't have to be about making expenses in general tax deductible. It could just be about making life different for women.
"I suspect they went through the same thought process."
Does anyone really believe that the reason childcare is thought of as a completely different expense to any of the others, is because they have sat down and thought about it carefully and decided that it was?
Rather than the more obvious solution that systems are designed by men for men and childcare is something that (until very recently and usually not even now) isn't "their problem"?!!!
With the MPs they can claim for a raft of things, travel expenses, food, hotels, gardeners, cleaners, duck houses, decorating etc etc etc
And yet when someone asks why they can't claim for childcare the answer is that it's obvious! Childcare is completely separate and different and don't be silly! But why? Assistance with childcare costs would greatly help women with children who are looking to enter this arena (let's face it, for the vast majority of men with children it's not a concern) and yet the answer is a flat no. Why on earth not?
cakeretention I'm not sure but I have a feeling that travel expenses and things can be claimed if you're self employed. Ditto a proportion of household bills if you use your home as a place of work. But not the pay for the person you are paying to keep your children away from you while you actually perform your work.
It doesn't actually make sense, to me. If you strip away the "way it is", then there isn't a logical reason why it shouldn't be included.
The rules are here
You can claim for travel associated with work and also proportion of costs of running a household if you work from home.
The test is whether it is wholly exclusively and necessarily an expense for your business -I suspect that taxman would argue that may fail first one if say doing something else not working or could have got non paying care like family member or if kids older sent them to school ( I agree this is weak but trying to think of arguments).
There is a case on clothes where (female) barrister tried to claim for costs of black clothing needed for court. She lost as said that needed clothes for decency and warmth . I suspect a similar spurious argument would be used .
I agree it doesn't make sense.
Access to good quality affordable childcare should be given to all parents irrespective of what their parents do for living, not just self-employed.
When you claim a % of your mortgage/rent and bills etc... because you work from home as a self employed person, the logic is that your business is paying for the space it uses - your workshop or office, including the electricity, phone etc...- in the same way as if you rented an office/workshop somewhere else you would charge that against your business. It's not a contribution towards running your household.
The MPs expense is different - because they have to be based in two places for work, so they have to run two households which they wouldnt have otherwise. You could put them up in a hotel in London and pay for that on expenses, but instead they paid for their second home.
Regular self employed people can't claim for gardners, cleaners etc.. on the basis that they do jobs that free up time to allow the person to get work done. If you had a cleaner you could charge maybe 1/5 of their time, on the basis that they spend 1/5 cleaning your workspace.
I do think a certain amount of thought goes into tax rules, doesn't mean they are right, but they are not completely arbitrary. The childcare part of WTC is designed to offset part of the costs of childcare just like tax relief would - but tapered so it only goes to lower earning families.
strangerintheday I wasn't suggesting that it should be restricted to self employed people, if you look at my posts. It was looking at the self employed rules that led me to think about this topic though.
Himalaya the tax rules are based on a. what has happened historically and that is where the framework comes from and b. the political agenda of the current group in power.
The idea that some sort of neutral group sits down and reviews them and puts in place what is logical is untrue.
I always find it funny how in the feminist section whenever ideas of this sort come up, to help women (and it is women 99.9% of the time) with childcare costs, the answer is it's IMPOSSIBLE and OUTRAGEOUS
I wonder would it be workable to have tax relief for dependents rather than specifically focusing on childcare?
So if you have primary care of a dependent child (or are the wage earning partner of a couple with a SAHP), or are a carer for an elderly, ill or disabled family member - could we make it so that their tax free allowance could contribute to giving you a greater tax free allowance.
Leaving you more money to pay for whatever services make your life easier as an individual combining paid work with unpaid caring responsibilities. Because for lots of people, that isn't actually childcare but outsourcing of other tasks.
That's very true anastasia.
Children don't get a tax free allowance though as they aren't allowed to work? Or are there rules I don't know about? Thinking about it maybe there is a cap on how much tax free income they can have a year eg on interest from savings - is that right? Then you'd have a situation where you'd be taking from one hand to give to the other though.
Tax relief for childcare sounds like a good idea and simple, whereas WTC is horribly bureaucratic.
The thing is Working Tax Credit is a relatively new system, and its not a continuation of a historic model, it required a whole new bit of bureaucracy to administer (which were designed for a reason) . So if you are proposing to replace the childcare element of WTC with a straight tax relief it is worth looking at the two policies side by side and seeing what the results would be.
Currently people with a low family income get 70p of every £1 they spend on childcare paid by the state, up to a limit. For people on a moderate income this benefit tapers away and high earning families don't get any.
If you replaced this with a straight tax relief:
People who earn less than 6.5K would loose all that benefit and gain nothing because they pay no income tax
Low earning families would loose 70p per £1 of childcare spend up to the limit and gain 20p per £1 altogether.
Higher rate tax payers wouldn't loose anything because they probably were'nt getting any WTC, but would gain 40p for every £1 they spend in childcare. The ones who use the most expensive childcare (e.g. the nanny's salary) would gain the most.
Families with moderate incomes where the high earner earn too much for the lower earner to get WTC for childcare would gain 20p per £1 of childcare spend -- essentially taking the responsibility to contribute towards childcare away from the high earner altogether and offsetting it all against the low earners taxes, with the taxpayer providing a subsidy rather than the high earning partner.
It would transfer money away from poorer families to richer ones, and would further embed the idea that childcare is the responsibility of the mother.
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