Page last updated at 04:58 GMT, Saturday, 30 May 2009 05:58 UK

Parents may lose out on tax break

By Jenny Culshaw
Business reporter, BBC News

Mothers with children in pushchairs
One in five employers offers the childcare vouchers scheme

The government should intervene to make sure working parents do not lose out on tax breaks towards the cost of childcare, a leading charity has said.

The Daycare Trust says businesses are being advised by the British Chambers of Commerce (BCC) to withdraw from the government's childcare vouchers scheme.

The scheme involves sacrificing part of your salary in exchange for "vouchers".

But the BCC says an employer could have to pay for the notional vouchers if a woman takes unpaid maternity leave.

About 300,000 parents take part in the scheme, which was introduced in 2005.

It is estimated that just under one-in-five employers now offers it.

Voucher bonuses

Employers are naturally risk averse and we would not recommend now that they use the vouchers in case they did become liable for the cost
Abigail Morris, British Chambers of Commerce

The "vouchers" are handled in an electronic account by a third party provider and are then paid to any allocated registered child carer from au pairs to nurseries.

Mothers and fathers can both commit up to £243 of their salary each month.

For employers there are also bonuses.

As well as providing an added incentive for people to work for them, they do not have to pay their national insurance contribution on the money employees allocate to the scheme.

They do pay an administration fee to the voucher providers but this can be as little as 2.5%.

Employer concerns

But since last October some companies have got cold feet.

An equal opportunities ruling from Europe has led to the implication that if a woman who subscribes to the childcare vouchers scheme goes on maternity leave without a salary, she should have her monthly payments kept up for her by her employer until she returns to work.

Alison Garnham
What we need the government to do is to set out some clear guidelines so everyone knows where they stand
Alison Garnham, the Daycare Trust

The potential cost has worried employers.

The British Chambers of Commerce says its members have been contacting it for advice.

And as the ruling has not been tested in court yet, it is advising them to withdraw from the scheme.

"Before the change in the law in October we would have told our members to go out there and offer the childcare voucher scheme as a benefit to their employees," explains Abigail Morris, policy advisor at the BCC.

"But with the change in the law employers can now be liable in certain circumstances for the cost of the vouchers.

"Employers are naturally risk averse and we would not recommend now that they use the vouchers in case they did become liable for the cost."

Seeking clarification

Parental support groups are concerned by the reaction of businesses.

The national childcare charity, the Daycare Trust, says working families have been asking them what impact the ruling might have on them. It wants the government to make the situation clearer.

"We really don't want to see a mass exodus from the scheme," says Alison Garnham, joint chief executive of the Daycare Trust.

"It's a very important scheme. What we need the government to do is to set out some clear guidelines so everyone knows where they stand.

"If the problems persist, though, it might be that they need to step in and give financial assistance to employers."

Although the ruling was seven months ago its impact on childcare vouchers was not highly publicised and only now are the first wave of women who could be affected taking maternity leave.

The Department for Business, Enterprise and Regulatory Reform (BERR) says it is looking into the matter and hopes to make a clarification within the next few months.

In the meantime uptake from employers is still increasing according to the companies who provide the vouchers.

The concern for working parents is that this figure will get lower rather than higher, unless the matter of payments during maternity leave is cleared up soon.

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