Childcare and the tax system - fascinating thread title! - but I'm genuinely interested

[SardineQueen]

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.

[shudaville]

It doesn't happen because by doing that the Government would be dictating to the Resident Parent what they should be spending the maintainence from the non-Resident Parent on.

[SardineQueen]

Himalaya I didn't misunderstand at all.

You haven't answered my question from earlier, about the principle.

"Do you believe that the state should assist families with childcare, Himalaya, or not?

Is it the nitty gritty of how the tax system works at the moment that you are arguing, or the principle?"

The tax system can be changed to accomodate whatever the lawmakers / government say it should accomodate. If it was decided that keeping a cat was bad for the country they could introduce a cat tax PDQ. If they decided that hedgehogs were good for the community they could make hedgehog houses tax free without batting an eyelid. It's not like it's the immutable laws of the universe we're talking about here.

[Himalaya]

SQ - to answer your question from yesterday, yes I do think the state should contribute towards the cost of childcare and also recognise the cost of being a parent, in general.

I just don't think blanket tax relief for childcare is the right policy - it would give something £12k to a couple earning 80k each and employing a nanny (or more if they could claim for the childcare element of boarding school) and 0 to a single parent working part time and earning 4.5k.

I don't think it is good enough just to put forward one policy option, not look at other options and conclude that if the govt doesn't use your preferred option it must be due to sexism and the fact that men designed the system. I just think that's too simplistic an answer. 

So when you ask '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?' Well, yes actually I do. If you want to read about it try this briefing:
www.parliament.uk/briefing-papers/SN00019.PDF

It doesn't mean they got the right answer or it can't be changed, but yes I think sitting down and thinking through all the options carefully is the right way to do it.

There are different reasons for a govt to support childcare -

1. Child welfare - for kids with a  poor home life who benefit from nursery, breakfast club etc...
   
2. Child poverty - boosting the earning power of families on low incomes and overcoming the obstacles to getting back to work
   
3. Supporting single parents who need particular help
   
4. Efficiency - because highly qualified women are wasting their skills
   
5. Efficiency - because the govt would make a net saving on benefits, and a net gain in tax
   
6. 'the economy needs you' - because there is a general shortage of workers
   
7. to encourage businesses to provide workplace childcare
   
8. to recognise the value/cost of parenthood
   
   Etc...
   
   First you have to say what the policy objective is, then work out what the right mechanism is not the other way round.
   
   I think WTC is pretty good because it targets the benefit at those who most need it (2+3) Child benefit is good (and I wish it hadnt been frozen) as it gives money to parents who can decide what to spend it on (8)

[SardineQueen]

shudaville childcare is terribly expensive though. Why should the NRP not bear 50% of the burden of the childcare costs? Alternatively they could look after the child while their ex worked for 50% of the time I suppose.

One of the most at-risk groups of poverty are single parent families, and child poverty is very high on the agenda and obviously a bad thing. Getting into work (full or part time) has been shown time and time again to improve the lot for families, not just financially. Women are often prevented from working by childcare costs, while the NRP has nothing preventing them from working and getting on with things. Why shouldn't they pay? They would have to if they were still living together.

[shudaville]

I just think say the RP was getting £100 a week from the NRP for the Government to say that £40 a week of that for example must be spent on childcare if the RP is in work would not be a welcome move.

[SardineQueen]

Himalaya then from your post I can see that we are coming at this from completely different angles.

Yours is from a welfare perspective, with a focus on relieving poverty. The current system which is capped by earnings is preferred.

My idea is that childcare in general should be more accessible and cheaper or free for all families. The state needs people to have children. At the moment the set-up is such that the act of having children basically scuppers choices for women. Men don't have this problem. (Generalising). Coming across the tax system and the MP expenses system I find that anything which men need is built in, while the main thing that women need is not. This interests me.

The point of this thread is to look at it as an idea. We all know full well that this is never going to happen, at least not in the foreseeable future. Why the refusal to speak in principle, and the demand for fully thought out and appended policy solutions?

I think you have answered my question though about how you feel about this topic and I think we simply disagree.

[SardineQueen]

shudaville if the RP was getting £100 a week, and then got a job and needed to pay childcare of £300 a week, the NRP would have to pay £150 on top.

What's wrong with that?

[shudaville]

The problem is the Government is dictating and interferring in how the RP spends her money. Also if the RP lost her job then the maintenence payment would have to fall, which would clobber the RP due to loss of income due to unemployment and reduced maintenence.

On top of that if the NRP is liable for 50% of childcare costs and has to pay £150 a week say, then it doesn't take into account their ability to pay that. This would be a particular problem in situations where the RP earns more than the NRP.

[SardineQueen]

It's just an idea shudaville! That in principle, childcare is a cost that should be borne by both parents, not just the NRP.

Do you think that the principle that childcare costs should be borne by both parents, rather than one, is wrong? Why?

[Bonsoir]

SardineQueen - I agree with you - it is outrageous that in the UK childcare costs are not deductible from gross pay in the way that other costs of working are.

[SardineQueen]

At the moment we have a situation where (generally)

Childcare costs stop a lot of women working, when they are in couples (not men though)
Childcare costs stop a lot of single parents working
Thousands of children live in poverty, most at risk are those from single parent households
Poverty contributes to a raft of social problems not to mention a horrible time for the individuals trapped in it
The majority of NRPs pay nothing, or very little. Contributing to all the problems outlined above.
For people not in poverty it is still not right that women who want to be out working are not able to, women who have had successful careers see them go down the swannee, women with degrees and doctorates and masters and things working in minimum wage roles.

The whole thing is cockeyed IMO. Trying to think of ways to help but they're all met with a resounding NO!!!

[karmakameleon]

I agree too SQ.

Himalaya, I understand what you are saying about tax deductable childcare costs being regressive, and unfairly subsidising families on high incomes. However, I think you have to have a very high income to receive an "unfair" subsidy. For example, a woman on 50k a year in London can easily spend all her take home pay on childcare if she has more than one child that needs care.

Rather than it be a transfer from rich to poor, realistically I think it would actually be a transfer of wealth from men (who would probably suffer a higher income tax rate) to women who would be enabled to work outside the home and receive higher take home pay if they do.

[karmakameleon]

NRPs should also have to bear half of the RPs childcare costs, or contribute actual physical care. Have no idea how you make them do that though when so few pay anything reasonable without a childcare element.

[saralyn]

In my country (Norway), child care is tax deductable. As far as I know you can choose to deduct it from the mother's or the father's salary.

Child care is also subsidised by the goverment, so you pay a maximum of 250 pounds a month per child for full time nursery, siblings get discounts.

We have a female employment rate of 73,3, the highest in Europe, except for Iceland. (In the UK it's 64,6).

Coincidence? I think not.

[karmakameleon]

Saralyn, I think that is the ideal system and would help the most people.

[sunshineandbooks]

shudaville I just don't see this as a problem:

The problem is the Government is dictating and interferring in how the RP spends her money. Also if the RP lost her job then the maintenence payment would have to fall, which would clobber the RP due to loss of income due to unemployment and reduced maintenence.

This is why I said the childcare element of maintenance should be completely separate and in addition to to normal maintenance, which the RP is free to spend as she sees fit. However, the additional childcare element would be just that - for childcare. That's no different from the childcare element of the current WTC and no one is claiming that the government is dictating what RPs should spends their tax credits on.

[Portofino]

I'm in Belgium - child care is tax deductible here too. And that also applies to afterschool care, holiday clubs and activities like dance classes.

Plus here also child care is subsidised so creches are vastly cheaper than the UK, plus from 2.5 every child has an absolutely free FT school place.

I have to prove that we are both in FT employment in order to use the afterschool care, but commune run holiday clubs are available to everyone.

It CAN be done.

[SardineQueen]

@ Bonsoir

There's a first for everything!

It's interesting that other countries in our neck of the woods do this, shows that it can be done and large numbers of people think that it is the right thing to do. The Norweigan way sounds great... £250 max a month?

[Himalaya]

Interesting point -Karmakamelon, I guess there are a number of different ways to think about and arrange the financial transfer  with different childcare strategies.

With uncapped tax relief it would definitely be a transfer from poorer to richer.( As well as from men to women and from people with no dependent kids to those with.)

It seems a bit odd to arrange the transfer between men and women through the roundabout route of the tax system as people already run households where they pool resources to raise children together (or if they are NRPs they SHOULD pay maintenance). The difference between WTC and tax relief is that one is assessed as a family, the other as an individual. I.e. WTC assumes that the father contributes to childcare/household budget. Which I think is right.

If you went for straight tax relief it would say that a woman earning 30k with a husband earning 100k should get the same help with childcare costs as a single mum earning 30k. This seems perverse to me. Why shouldn't the couple who decided to have a child together decide to pay for childcare together to enable the woman to continue her career  (I.e. A transfer from the man to the woman)

I think that making the childcare conversation all about the woman, the state and the taxpayer doesn't challenge the situation where childcare is all down to the mum, and becoming a dad changes little for men's expectations of work.

Maybe the best way to think about spreading the burden of childcare costs (other than to families in poverty where it is a welfare/tax role) is that it is a transfer from our younger and older selves to our child rearing years - like SMP/ maternity allowance which is part of the NI system - kind of enforced saving.

Then there is the question of how society values child rearing and makes a transfer from the childless, and the better off to parents. This I think should be through a child benefit mechanism - a cash transfer that parents can use for childcare or the cost of being a SAHP or whatever.

[Himalaya]

Saralyn and Portofino

• didn't Norway and Belgium both hav fertility rates that dipped well below the replacement rate, so women were having on average 1.6 children in the 1990s - is that what pushed them into adopting these generous policies?
  

Usually when govts put in place generous childcare provisions it isn't about solving a labour shortage problem ( after all there are rarely general labour shortages where any woman will do, and where there are shortages in specific skills you can raise the wage rate in those specific areas...)

The reason they do it is not to tempt women back to work, but to tempt them back to having babies.

Saralyn do you know what % of women with dependent children are working in Norway vs uk etc...

[karmakameleon]

I'm not sure how many households do actually pool income Himalaya. There are a shocking number of threads on here where it seems that finances aren't pooled and the mother seems to get the hit on childcare. For single parents the NRP doesn't even make a contribution to childcare costs as we've been discussing, so for seperated parents, there does have to be a mechanism for a real transfer some how, that isn't currently in place.

One of the big issues with WTC is that they are complicated and difficult to administer. Therefore I think that straight forward tax deductable childcare is the best way forward as it is simple and easy to implement. This should be suplemented with subsidised care and free for people with the lowest incomes. Free care for those that don't pay back tax should minimise any issues of regressive taxation. (Btw, there are lots of aspects of the tax system that are regressive that you don't seem to be up in arms about. Any offset that SQ makes against her income as a self employed person could be seen as regressive on the grounds that they only make a difference if she earns a fair bit and pays tax. The more she earns and the higher the rate of tax she pays, the more she benefits from the deductable expenses, but you don't seem to have an issue with this.)

Also, it's all well and good to talk about government challenging the idea that women are mainly responsible for childcare, but the reality is that they are and government also has to recognise this and try to minimise the impact for women that want to work.

And, yes, basically, the only way we will get more help with childcare is if women go on strike and stop producing children. That'll make someone somewhere sit up and listen.

[Himalaya]

Karmakameleon - you don't have to be putting all your finances through a joint account. If you are living in the same house, eating the same food, driving the same car etc... you are pooling resources.

Don't you think a single mother earning 30k and spending 10k on childcare needs more help from the state than a woman in the same situation whose husband earns 100k and pays the mortgage, bills etc...?

I agree that NRP should contribute to the cost of raising their child (including childcare whether done by a SAHP or a professional), but tax relief isn't a mechanism for that.

If you replaced WTC with the simpler tax relief solution loads of people on low to moderate incomes would be worse off, but someone on a 6 figure salary could use their Childs boarding school fees as a tax write-off.


I am not sure what other personal expenses paid for out of pretax income you are talking about. The guidance on what you claim is that they business expenses.

I don't think we have to go on strike against having children, just against having them with someone who doesn't see it as an 18 year life changing commitment to their child.

As whatnevermind said on the other thread:

Don't have children with someone unless it's very clear what is happening childcare wise after the birth. If you're with someone who isn't prepared to make career sacrifices don't have children with them.

Don't give up your career and enable your partner to further their career. Both cut your hours in the early years.

[karmakameleon]

I am not sure what other personal expenses paid for out of pretax income you are talking about. The guidance on what you claim is that they business expenses.

[karmakameleon]

Don't you think a single mother earning 30k and spending 10k on childcare needs more help from the state than a woman in the same situation whose husband earns 100k and pays the mortgage, bills etc...?

[karmakameleon]

I agree that NRP should contribute to the cost of raising their child (including childcare whether done by a SAHP or a professional), but tax relief isn't a mechanism for that.