The Childcare Swindle

Who benefits?


Let's say a parent engages the services of a childminder and pays him or her £300 a month.  Seventy percent of that comes back to the parent in the form of Child Tax Credit, so the parent has to make an extra £90 to pay the childminder and come out even.

In order to clear a net £90, the parent's pay must increase by £333.  (Of the £333 increase, 41% is lost in Working Tax Credit withdrawal, 20% goes to PAYE, and 12% goes to National Insurance, leaving the £90 to pay the childminder.)

The £333 increase carries an additional £46 National Insurance burden for the employer.

Let's say the childminder writes off £100 of their £300 fee on expenses and pays tax and National Insurance on £200 - that's £64.

The total additional tax take for the State is £243 from the parent, £46 from the parent's employer, and £64 from the childminder - a total of £353.  Take away the £210 Childcare Tax Credit which is refunded to the parent, and the net profit for the Treasury is £143 - and that's without considering whatever social security benefits the childminder forfeits.