Childminders Under Threat From Incoming Tax Changes

Changes to income tax reporting could force home childcare businesses to close, childminders have warned.

Under Making Tax Digital (MTD) – a new way for sole traders to report their income and expenses to HMRC – affected childminders would claim tax relief, rather than a 10% “wear and tear” allowance.

Basingstoke childminder Ash Crouch said the changes represented a “serious threat to the sustainability of thousands of home-based childcare settings”.

HMRC said under MTD, some childminders may be able to claim tax relief than they currently gain under the wear and tear allowance.

Childminders say that looking after pre-school children in their own homes, means they face worse-than-normal damage to household items and decor as a result.

Under the wear and tear allowance, they have been able to reduce their amount of taxable income by 10% to cover the effects.

From April, sole traders who earn than £50,000 will be required to use MTD to record their business expenses and tax deductions.

Affected childminders can continue to get full tax relief on the business proportion of their expenses, such as buying new items or paying for repairs, rather than claiming the 10% allowance.

Hayley Rich who employs an assistant for her home childminding business, is one of those who will have to use MTD from April.

“It will make a significant difference to my business – I’ve got to find the money up front to pay the decorator, or buy a new sofa – with wear and tear, it meant I could save that money up.

“I’ve got to change everything to fit in with the new way HMRC are doing it. Accounting-wise it’s a pain – I can probably get that money back, but it’s about laying it out first.”

Crouch set up an online petition opposing the changes, which said they risked “tipping an already fragile childcare system into crisis”. It has so far had than 4,500 signatures.

“If the allowance is removed, childminders will be left with no easy choices – absorb the costs themselves, increase fees for parents – often impossible for funded hours where parents just get funded places – reduce what they offer, or close altogether,” he said.

In a statement, HMRC said: “We anticipate very few childminders will need to sign up for Making Tax Digital from April, and those that do can still claim deductions for costs of wear and tear.

“They must include accurate records of all business expenses in their quarterly updates – and may be able to claim tax relief than they currently do.

“As with other sole traders, MTD will allow childminders to keep better track of their finances, helping their business to grow.”