The Government has come under fire for introducing a childcare change that will see parents facing a tax rate of almost 500 percent
Parents could lose £20,000 each due to a “warped” change by HMRC, they have been warned. The previous Tory government introduced help for parents starting from September 1 in which they can get 15 hours of free weekly childcare.
However high earners will not get the aid. Families where at least one parent is earning over £100,000 will not qualify for the help.
This means the top-earning UK parents will miss out on the £20,000 in annual childcare aid – even if only one parent has the salary. And it means that families where there is just one earner can be worse off than those with two who earn jointly more but still get the help.
For example, two people earning £90,000 each -£180,000 in total – will still get the help while another family with a single earner earning over £100,000 will not. Savings expert Charlene Young at investment firm AJ Bell said: “Whilst many working parents will welcome the latest extension of funded childcare hours, a distortion in the tax system means that the cliff-edge for high earning parents will worsen.”
And this could be something as simple as a £2,000 bonus paid to someone earning close to the £100,000 who gets a bonus. Ms Young said: “Under the current rules a family with two children aged one and two – where the breadwinner earns £99,000 but gets awarded a bonus of £2,000 – would be classed by the Government as earning an adjusted net income of £101,000.”, reports Birmingham Live.
And she issued a stark warning to those who have received pay rises, cautioning that it could end up costing them “£10,000”. She said: “Due to the warped rules, this £2,000 pay rise ends up costing them nearly £10,000, an effective tax rate of almost 500pc.”
She added: “If you are the parent in that example, paying in just £800 to a pension would lower your adjusted net income by £1,000. That’s £800 plus automatic basic rate tax relief, which gets you back £11,520 and tops up your pension pot by £1,000 too.”
Meanwhile, a Department for Education spokesperson highlighted the issues with early education access and affordability, particularly for disadvantaged families, stating: “Quality early education has been unavailable or unaffordable for too long. It’s often the most disadvantaged families that miss out. Fixing this is a major government priority.”
