Business to be hit by withdrawal of childcare vouchers fears serious repercussions for Midlands’ workforce
A company which will itself be affected by the withdrawal of tax and national insurance relief on childcare vouchers fears the move will have serious repercussions for many Midlands businesses.
Worcester-based Rabjohns LLP, which has been advising other companies on the financial implications of the decision - is itself reeling from the news.
Employees taking up childcare vouchers from April 2011 will no longer benefit from tax and national insurance breaks, while employees who are existing recipients of childcare vouchers will have their tax and NI relief withdrawn from 2015.
Money saved from these withdrawals will go towards offering free childcare for 250,000 two-year-olds by 2015-2016, according to the Government.
However, James Geary, business and tax adviser at Rabjohns, said the move would have major consequences on thousands of Midlands businesses, including themselves.
"Fifteen per cent of the Rabjohns workforce are users of the childcare vouchers scheme - and the removal of this exemption will mean that they will suffer financially.
"If Rabjohns' situation is replicated throughout the Midlands, thousands of employees - at all levels of the workforce - and ultimately their employers across the region will be affected.
He added: "Though the Government's rationale that this will aid poorer families is laudible, the foresight is clearly missing - this move in my view is counterproductive, taking away the incentive for many mothers to return to work earlier after having children.
"Indeed, many may no longer be able to afford to stay in work, which would, in turn, increase the financial burden on the Government in terms of tax credits and other benefit claims.
"Whilst in a recession, quality staff with years of experience are more important than ever to service-based businesses yet this move could make it financially impossible for a large number of such employees to remain at work.
"The negative impact on the economy that this decision will create could prove extremely damaging at a time when all attempts are being made to move the UK towards recovery.
"There is widespread call for the Government to make a U-turn on this announcement, and it is hoped that they will see sense and decide to retain the exemption going forward."
The scheme, introduced in April 2005, allows employers to provide up to £55 per week of childcare vouchers to their staff free of tax and NIC.
When set up under a salary sacrifice scheme, this allows basic rate tax payers to save more than £900 per year (nearly £1,200 for higher rate tax payers) as well as delivering an NIC saving to the employer of £373 per employee in the scheme.
These factors have contributed to a huge rise in popularity of such salary sacrifice schemes with several large specialist providers now assisting with their set up and running.
For more information on how the withdrawal of the childcare vouchers scheme could affect you, call James Geary on 01905 732100.
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