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.

[karmakameleon]

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.

[Himalaya]

Karmakameleon -

Offsetting losses is not the same thing as deducting expenses to find your taxable profit. As your example shows it is more like averaging out profits and losses over multiple years so you are paying the tax due, on the basis of your average of profits and losses.

It is an interesting point though that there to could be a special case for offseting childcare costs (or more properly the 'wage' the business should have paid you for your time in starting up the business which would allow you pay for childcare..) in calculating the initial losses of the business. A kind of childcare allowance for new business venturers? No idea if that would work..

On the question of whether you can break even from working and whether you can afford to work are two different things. If you have a household income of 100k you can afford to do most things, and certainly more than the vast majority of people who would be funding your tax break.

[Portofino]

I have to admit that I am not an expert on the Belgian tax system, but from what I have read, despite the very generous child care set up here, only about 40% of women work. On the other hand, the tax system is in favour of large families, so I believe that one man, with non-working spouse and 3 or more children is extremely efficient with regards to tax (all allowable) and child benefit that increases the more dcs you have.

So there is probably a situation that for many families, given the high tax rates anyhow, that it really isn't financially efficient for some women to work at all.

I will try to do some investigation in to why they do what they do....

[Himalaya]

"Belgian tax policy" .... Do you think we'll make Discussion of the Day ?

[Bonsoir]

Himalaya - high earning women with high earning husbands may be able to afford to cover the costs of childcare with their second income and turn a profit, but the question of whether their family's lifestyle is more improved by the marginal increase in their income or by their work in kind is still a very valid one. And if highly qualified women are not financially incentivised to work, then their skills may be lost to the economy forever. It is more than a financial calculation, IMO.

[karmakameleon]

Offsetting losses is not the same thing as deducting expenses to find your taxable profit.

[Portofino]

Looks like my 40% statement was totally wrong - I found this The 40% figure is the percentage of women that work Part time.

And monthly child benefit:
? 86,77 for the first child,
? 160,55 for the 2nd child,
? 239,72 for each child after the 3rd.

On top of this there is a supplement ranging between 70 and 500 euros per month for a child with a disability.

[Himalaya]

Karma (& SQ)

The thing is when you start a new business that needs a lot of upfront development time before you earn any revenues, you are effectively working for free, and hence you are not getting any money out of the business to pay for your childminder (or your rent, food bills for that matter).

When you start a business you put in your own capital (or borrow it) plus your own time - your 'sweat equity', so you have to fund your own living costs from somewhere else -savings, your family or an enterprise allowance scheme. That includes childcare costs, but also other living costs, no difference.

The 'loss' you are feeling is that the business is not yet paying you, or not enough, so you are putting in time for free.

Say you give up your job to start your business, you loose wages- that opportunity cost is not s tax deductible expense to the business. If you give up your 'job' as a FT SAHP that opportunity cost is not tax deductible either.

The pay-off for the capital and time you put into the business is that it's your business. You take the risk, you make the profits. hopefully at the end of it you are earning enough from your business to make it worth your while.

[Himalaya]

Bonsoir - I agree it is more than a financial calculation.

That is why financial incentives will be particularly expensive and ineffective for those with higher earning potential. They are already incentivised to go back to work by their high earnings, but may choose not to because they want to stay at home or because the practicalities of two high pressure FT workers doesn't work for them. The problem i think we are trying to solve in relation to high earners is why in this siuatiin it is so often the mother who takes the career hit.

Giving high earners a further marginal increase in take home pay isn't going to change this. You end up with high 'dead weight costs' where you give tax breaks for things people would do anyway and can comfortably afford, and not many people persuaded to act differently because of the benefit.


If the problem is women on moderate incomes and/or early in their career not being able to afford to work, then I think this is better addressed through a targeted benefit, like WTC - if you raised the earnings limits on this a bit you could give more of these women support without all the dead weight costs of giving tax relief to the highest earners.

[karmakameleon]

I'm not talking about losses that people are "feeling" but losses that they are actually incurring. When you start up a business you have to pay for things that if you weren't starting a new business you just wouldn't need.

These things may be a new computer, a desk, travel to a client etc or they may be childcare. Rent, food and bills I incur whether I start my business or not but childcare, which I just wouldn't need. That's why childcare is a business related expense and food is not.

(Opportunity cost of lost wages is not a "real" cost, it is an "opportunity" cost and so of course it isn't deductable.)

[Mumswang]

Isn't it because< simplistic face> when working for an employer printer cartridges, electricity, a car if necessary for the job are all paid for by the employer. But they wouldn't pay for an employees childcare?

[karmakameleon]

Giving high earners a further marginal increase in take home pay isn't going to change this. You end up with high 'dead weight costs' where you give tax breaks for things people would do anyway and can comfortably afford, and not many people persuaded to act differently because of the benefit.

[karmakameleon]

Mumswang, it probably is in part because historically employers didn't need to pay for an employee's childcare. They would employ men who didn't need it. For women who worked in factories etc, perhaps the children would also be working or maybe they would be cared for by other family.

Either way, although no one needed to bother about childcare expenses historically, the world is very much a changed place now and the tax system needs to change with it.

[KatyMac]

This is all getting very technical; but to me, as an employer, the reason childcare isn't a business expense is the same reason an elderly parent, a sick partner or a dog that needs walking at lunchtime aren't business expenses.

I expect my staff to be available for work dressed in uniform top (I pay for), trousers/skirt/shoes/underwear (which I don't) for the hours I employ them irrespective of their lifestyles/commitments/children etc

(of course I don't & I do take into account their circumstances as I am a fairly normal; but I have had bosses like that)

CHildcare can't be a business expense as employees are required to be treated equally (do you remember all that nonsense about cigarette breaks and some (non-smoking) staff complaining that their colleagues were getting more time off) & what would/could you do for employees without children or with grown children.

[karmakameleon]

CHildcare can't be a business expense as employees are required to be treated equally

[karmakameleon]

Just going back to the whole, childcare is like your lunch, it's a personal expense point.

An employer can provide any benefits he wants for his staff. However, the employee may or may not be taxed on the benefit.

So if an employer provides free childcare, those who use it would be taxed on it as a benefit in kind. However, if an employer provides a free lunch each day for his staff, that would not be taxable. (ie, the lunch is being treated as a legitimate business expense but the childcare is not.)

So for those who think the tax system is thoroughly thought through, actually it's not. There are all sorts of ramdon things aren't taxable and we just live with them because that's the way it's always been.

[Himalaya]

Karmakameleon

You are right, there is a right hodge-podge of regulations, but as Katymac says the general principle is that lunch, childcare, health insurance, company car are taxable benefits. There are exceptions (luncheon vouchers up to 15p a day, company canteen but only if open to all staff, childcare vouchers up to £55 a week, workplace childcare if it meets all the regulations and requirements) but they are tightly constrained. That there are schemes to allow exceptions to the principle doesn't change the basic principle. You could argue to make a general exception for childcare, but as I've said would need to wweigh up if that is really the best policy approach.

What are the men-only employee benefits that are tax free without limit?

[Himalaya]

These things may be a new computer, a desk, travel to a client etc or they may be childcare. Rent, food and bills I incur whether I start my business or not but childcare, which I just wouldn't need. That's why childcare is a business related expense and food is not.

[karmakameleon]

Himalaya, I dispute that there is a general principle on this, it is merely a hotch potch of rules that changes and evolves over time to suit governments and businesses.

Lunch is tax deductable if you provide something for all employees. Don't have to be a canteen and doesn't to be the same. At one place I worked there was a dining room for top employees. It was basically free and restaurant quality food in a restaurant style setting. Everyone else got a subsidised canteen and that met the tax rules. At DH's current work, the staff can order in from local sandwich shops, takeaways and restaurants but different employees get different options, and that meets the rules. Basically if an employer wants to provide a tax free lunch he can but I can't see how this is business related. I'm going to get luch whether I'm at work or not.

Childcare and health are not tax deductable. Presumably if someone is sick they are going to need the medical treatment anyway regardless of whether they work so I can't see how that relates to work. However if you're not working you would not still the childcare.

The company car policy has changed over time. Historically cars have been tax deductable, then they became taxable because government realised that people were using them for private use. The tax on company cars is quite a palavar to calculate as they try to allow for business use and because it's a pain most companies have moved away from providing cars and just give a cash car allowance.

The outlier, really is the childcare. It is the only expense that relates directly to your ability to do your job but has never been tax deductable. Historically there has been no need (as the cost was fully borne by the mother) and there is no incentive to change it now as the main beneficiaries would be mothers and they don't have enough clout.

[karmakameleon]

You could argue to make a general exception for childcare, but as I've said would need to wweigh up if that is really the best policy approach.

[karmakameleon]

But if you didn't start your business your child would still need caring for.

[Himalaya]

Well thats what they say is the general principle: (Dawn Primorolo, the last government) "the general principle is that relief is not given for private expenditure incurred to enable an employee to go out to work, but only for expenses incurred in the performance of his or her duties of employment. This means that the expense must be one that any other employee doing the same job would have to incur whatever his or her personal circumstances. Allowing a tax deduction for the cost of childcare for all working parents, rather than through a targeted exemption, would be expensive and poorly targeted. We believe that financial help for parents towards childcare costs should be provided through the tax credits system. Self employed people can receive help with the cost of formal childcare through the childcare element of the working tax credit."

[Himalaya]

If you are not doing business in the room (a rarely used spare room or attic say) you are not making a mess in it and it doesn't need cleaning. Or if you did use it for somthing else altogether before you started your business- play room, sewing room etc, mumsnetting desk etc.. If this makes a mess and someone spends time cleaning it that is work for the family.

When you set up the room as your business premises you lost the use of the space to make way for the business (at least that's what you tell the taxman if you ever get audited) - you should only charge to the business the time the cleaner spends clearing up mess from the business.

[Himalaya]

If you are a feminist, how you not see that allowing childcare (in some form or other) would be the best approach?

Because, as you say yourself it values the child care work that mums (or dads) do at home at precisely zero.

It assumes that dads will contribute nothing to childcare (.. Encouraging them to contribute nothing to childcare)

It is regressive, and gives no more help to a single parent than to one with a highly paid partner ( who is allowed to carry on his work because his children are cared for..)

We have a fairly decent system in WTC that supports childcare costs for those with low to moderate family incomes - why dump it for something that is symbolically attractive, but less effective and more costly

[saralyn]

Himalaya

it is true that fertility rates dropped in Norway, but that was back in the late 70s, early 80s (was then 1,68). It started going up again in the late eighties, while we didn't get the maximum rate on nurseries until year 2000-something.

But yes, I do agree that the motivation behind gradually improving maternity leave pay, nursery susidies, tax brakes etc, is to increase the birth rates (and it's working, the number of children per woman is now up to 1,95, highest in 40 years.)

And this, imo, is an argument for subsidising child care. It is beneficial to a country not to have a low birth rate, therefore you must encourage people to have children (or you could of course allow more immigraton instead, but that's another argument).

Howeever in Norway, the unemployment rate is usually low, so we do also need the women to work, I think.

I cannot find the stats on single parents working.
In my experience, most single parents work, since there are nursery places and after school clubs available, and it is possible to stay home with sick children without loosing pay.
It's a matter of carrot and stick though, benefits are cut when the youngest child is three years old, and you are then excepted to work.