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.

"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."

Well there's your answer.

It's too expensive.
And people don't accept that childcare is something that society needs to see to, it's something for individuals to deal with.

FWIW the costs of childcare are such that you have to be earning much more than a "low to moderate" income before work pays for it. And that's when you've only got one child. Have two or 3 preschoolers and you have to be in a very lucrative role indeed to fund it.

This idea as well that handing out tax efficient / subsidised / free childcare to all will set women back loads in their family situation, and keeping things the way they are is the best way to do it. Well it's not, is it. Careers are ruined, highly qualified experienced women end up working for min wage around when people can help them out, choice is not there for any women apart from those on top whack salaries who continue to work full time. The set-up at the moment = a situation where women are dropping out of the workplace, off the ladder, when they start their families, even when they don't want to. That is not right, and it is backwards. And I agree that I find it hard to understand how a feminist could say this is not a problem.

What are the thresholds for WTC, out of interest? I have been googling but the answers I am finding seem to suggest it is terribly low. Like less than minimum wage low

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

Himalaya, you seem to be quite convinced that women with high income partners shouldn't benefit because their partners can cover their childcare costs. What if the man is abusive? Best way to make sure your victim doesn't leave you is to make sure they have no money. Women whose partners earn a lot are just as vunerable as women whose partners don't earn very much. If they think that going to work will provide them with a safety net, the state should be supportive of that.

And, you've brought up the regressive thing again. The cleaner is regressive but you aren't really worried about that. Any reason why?

SQ - I feel like we are going around in circles. Saying that one particular solution is not the right solution is not the same thing as saying there isn't a problem .

SQ - I think people have pretty clearly argued why your house cleaner or your childminder it is not a business expense. Where your office cleaner is a business expense. If your office is in your house the distinction is harder to see but the principle is clear.

Then there is a separate question about whether it is a good idea for the govt to use the tax mechanism in this way to achieve social policy ends, which is a possibility as they do it for other things - i wouldnt rule it out, but to decide whether it is the best solution you have to weigh it up against other ways of reaching those objectives (e.g. Raising the WTC earnings limits) to see which is more efficient at achieving those ends (less regressive, less dead weight costs).

I suppose I simply feel that for women a lot of pressures are at play of which the end result is that they take a huge financial hit (and potentially self-esteem and other things linked in) when they have children. Which men don't. (Generalisations obviously).

I think that doing something about childcare costs would be a great help in this area and would open up a lot more choices for women and be generally beneficial.

I don't think that putting the onus on individual women to sort out their own affairs and if they don't or can't saying tough you've done it wrong is helpful. The pressures on women to conform to a certain way of living when they have children is very strong and a lot of women don't actually want to change their lives that way but find there are no alternatives.

Seeing assistance with childcare as an individual welfare benefits issue vs seeing it as an issue for women across society as a whole. I see it as the latter and I think that the different views on this thread are pretty incompatible.

Karma is the person who has been talking about the cleaner example again, not me, BTW. I was out earlier

Ah, sorry SQ, Karma that's me going around in circles there

Himalaya, sorry if I wasn't clear. My last post was not about whether the cleaner is business related expense or not. It's more to do with the fact that you argue that allowing childcare is regressive. I can see that, but allowing cleaning is also regressive but that doesn't seem to bother you. I'm wondering why not?

Karma - that was what I was trying to answer....

The principle that you pay tax on your profits not on your revenues is basic. It's not progressive or regressive its just how tax is calculated. So legitimate business expenses are paid for out of gross revenues. An office cleaner is a business expense, a household cleaner isn't.

Childcare isn't a business expense, it's a household expense so it comes out of taxable earnings. Imagine a couple with two separate businesses. Which business is liable for their childcare expenses? Presumably you could say either or 50/50 it's up to them? I can't think of any other business expense that would work like that between two completely unrelated businesses - it points to the fact that it's a household expense.

So then if you say it's a good idea anyway, not because it fits the principle of business expense (really, it doesn't!) but because it solves the problem we all acknowledge of women dropping out of the workforce to their own detriment. Then the question of regressiveness comes in. And ithink it makes it bad policy.

Say there are two women - one earns 30k brfore tax and pays out -15K on childcare, the other earns 65k and pays out 15k, who needs more help from the taxpayer?

If you make childcare expensivke for tax purposes (very back of an envelope, illustrative,..)

The lower paid woman gets 3k tax benefit and clears 13k, after tax and childcare
The higher paid woman gets 6k tax benefit and clears 33k after tax and childcare.

That just seems like a bad way of directing limited public funds to women for whom childcare expenses are the on factor keeping them out of work

just to throw in a random comment - in the US, childcare IS tax deductible.

just to throw in a random comment - in the US, childcare IS tax deductible.

The principle that you pay tax on your profits not on your revenues is basic. It's not progressive or regressive its just how tax is calculated.

kickassangel, I didn't know that. Has it always been deductable or was the change made recently? And if it was recent, do you know what prompted it?

To add another point - several people are questioning why the UK tax system is set up this way with the implicit assumption being it always has been. It hasn't. Childcare costs used to be tax deductible when I were a lass, and do you know who changed it?

Can you think which government, which Prime Minister, thought it was a bad idea to help women work?

That's very interesting working. I have no idea! I'm sure you will tell us though.

Do you know the reasoning why it was changed as well?

Someone has started a petition here

A chauffeur is tax deductible though, so all you need to do is employ a chauffeur instead of a nanny and have them drive your kids round all day !

It was changed by Margaret Thatcher - so our first female Prime Minister. who had childcare paid by her millionaire husband, took this tax deduction away from all other working women.

I don't remember what the argument for it was at the time but I remember being horrified by it, even though at the time I didnt have DCs.

Why am I not surprised?

Presumably she did some deep, well thought out analysis and found that people were paying for childcare regardless of whether they worked or not so it wasn't really a business related expense. Maybe.

Workingitoutasyougo - dridn't they take it away the same time they put in place free nursery places for 3 and 4 year olds?

Not defending the Tories for taking away the tax benefit and not replacing it with something more targetted for working parents, but the fact that Dennis Thatcher would have had 40% of their nannies salary as a kick-back from the state shows why it's not the best policy.

karma - no idea how long it's been like that, only lived here a few years, but it seems to be long standing.

himalaya - the last labor govt brought in free nursery places, about 5 years ago, i think.

working I am not sure you are right about that. Childcare has never been tax deductible - the Thatcher hypothesis sounds like an urban myth. A couple of points:

• A left wing government in france, about 10 years ago, made all domestic staff tax deductible as a way of INCREASING employment. This was very effective and had a secondary benefit of helping working women with nanny pay (but not nursery fees). It was calculated that the total tax take of the govt did not reduce as a result due to the extra tax paid by extra (declared) employees.

Also in France, very simply your personal tax allowance is increased according to how many children you have. This is MUCH better than WTC as all benefit (that's why Labour shied away from it as they didn't want RICH people to get tax breaks even if that were cheaper for the govt - Himalaya, does it really bother you that someone like Dennis Thatcher would get a benefit if the system were the cheapest and most effective?? Isn't that purely class envy? I expect he paid a shedload of tax anyway) and running it costs next to nothing, whereas at the moment WTC is both underclaimed and very expensive.