Critics have slammed a “warped” change from HMRC that could see parents lose out on £20,000 each. The previous Conservative Party government, in power until July, rolled out measures on September 1 offering 15 hours of free weekly childcare.
However, under HMRC rules, families with one parent earning over £100,000 are barred from this benefit. This exclusion means that high-earning UK parents could miss out on more than £20,000 in childcare support every year due to the recent changes, as new figures suggest.
A household with a single high earner and two children under two might face losing £20,000 in childcare support annually from the next academic year, in stark contrast to a middle-income family where the main earner brings home £60,000. Charlene Young, a savings specialist at AJ Bell, commented: “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.”
Ms Young explained: “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.
Ms Young issued a stark warning to those who have received pay rises, explaining it could end up costing them “£10,000”. “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 said.
She went on to explain that a salary would need to increase to £126,624 to match the disposable income of someone earning £99,000, which would create a situation where parents are “effectively worse off earning between £100,000 and £127,000. 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,” she added.
However, a Department for Education spokesperson said: “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.”