Childminders must now prove their business is being run to make a profit or could be forced to repay thousands of pounds in backdated tax credits.
HM Revenue & Customs began sending letters to childminders who claim Working Tax Credits (WTC) last July, asking them for evidence including business plans, examples of advertising and addresses of customers.
Since then, many childminders have had their credits stopped and received bills from HMRC running into the thousands of pounds.
The move is part of a blanket change to WTC eligibility for the self-employed, announced in the 2015 Budget.
Grassroots childminding networks are rallying together to question why childminders are not receiving the same tailored response as they do for their annual tax returns. Many low-income and part-time childminders fear the loss of WTC will put them out of business.
Sarah Neville, a registered childminder who runs the website Knutsford Childminding Resources and a childminding Facebook group of more than 17,000 members, said the network has been inundated with concerned childminders either reporting they have received the letters or anxious they will do.
‘It is a big worry for a lot of people, and it’s likely to affect thousands,’ she said. ‘We put up a post about the letters asking for feedback and received over 300 replies.
‘Normally, when you get tax credits, you know it’s not forever, but at certain times we need a little bit of help – say if you want to get a degree to become more qualified, then you can only work four days a week so are in need of a top-up; or you are an older childminder who just wants to have two children three days a week: now [HMRC is] doing these audits, it will be harder for them to continue.
‘HMRC is saying, “Where’s your business plan? And your advertising’s not good enough.” The fact is, many childminders work incredibly hard but can’t grow their business. They’re not taking the mickey, it’s just that’s how their business works. As a childminder there are lots of limiting factors to your earning capacity and ability to make a profit, such as ratios, the size of your house, operating in a rental property and, of course commonly, looking after your own children.
‘And the biggest point is that these childminders are providing a valuable service – the Government needs them for their future childcare plans.’
Ms Neville added that when childminders successfully provide evidence in response to the first letter from HMRC, they then receive a second letter asking for even more information about their business.
HMRC told Nursery World, ‘As announced in the 2015 Budget, from 6 April 2015 all claimants who are using self-employed work to qualify for WTC must be able to show that they are trading on a commercial basis and that their work is undertaken with the intention of making a profit.
‘HMRC is checking new and existing claims for WTC where there is a risk that they may not meet the test that has applied for self-employed WTC claimants since April 2015. The aim of the test is to ensure that claimants meet the eligibility requirements, in particular that they are working for the required number of hours a week.
‘HMRC checks claims for WTC in this way to make sure that claimants do not receive overpayments in error, as this could mean that they potentially have to repay a larger amount at a later date.’
HMRC said it consulted with groups that included Working Families and Child Poverty Action Group.
The department also claimed that ‘early indications are that childminders form a small proportion of those we have asked for information about their self-employment’.
Liz Bayram, chief executive for the Professional Association of Childcare and Early Years (PACEY), said, ‘PACEY understands that the Tax Credit Office is contacting some self-employed claimants of WTC with average earnings below the minimum wage and asking them to provide detailed business records and evidence that they are trying to make a profit. Childminders are self-employed, and a small number receive WTC for a variety of different reasons.
‘We are in regular contact with HMRC and the Department for Work and Pensions to ensure officials have a better understanding of the realities of childcare businesses and how changes to WTC and the roll-out of Universal Credit may affect PACEY members.
‘HMRC has committed to work with PACEY to ensure that future requests of childcare professionals reflect their working arrangements. We have also been given reassurance from HMRC that providing a business plan may not always be appropriate for a childminding business and that this will be taken into account.’
CASE STUDY: ‘SUZY’, A CHILDMINDER IN LONDON
‘I’ve been a childminder since 2012 but may now be forced to move out of London and close my business due to my working tax credit and child tax credit being stopped and rising rent costs. HMRC also say I owe them £16,000 in back-dated credits unless I provide the required evidence.
‘It all started because HMRC brought in changes to check everyone who’s self-employed, on how you’re running your business and if you’re making a profit. I received a letter from HMRC in July asking for evidence of this.
Initially I called up HMRC because, due to data protection, I’m not able to send documentation with parents’ and children’s details on it, which the letter asked for.
‘When I said I would send in my bank statement and expenses, they said this was not enough evidence. They stopped my claim in August while I was talking to them. They even stopped my Child Tax Credit. So for August I had no income whatsoever because I had three children leave to start school or pre-school.
‘Childminders have restricted ratios, so I was full with three under-fives at £50 a day and my own child. Pre-August, I was earning £400 per week term-time and £200 per week in the holidays – with that I could just about afford my rent and living costs.
‘And because I got new parents in September, I didn’t actually have the money until November. My rent is just under £1,000 a month, and with council tax and bills on top of that, I ended up in debt. I’ve been trying to recover since August.
‘I do a lot of activities and outings with the children and I think that’s what makes my setting so special. And with this, on top of the 30-hours free childcare coming in, there’s no way I would be able to do that. It’s sad and we’re going to see a reduction in childcare options for parents.
‘HMRC said to me, “Why didn’t you just send us what you had?” They said the reason my credits were cancelled is because I had not responded to them, when I had been back and forth with them since I got the letter in July.
‘I was told on the phone that as it stands I owed them £16,000 in backdated credits as I was no longer entitled for the whole year. I have not received written confirmation as I have until March to submit the evidence.
‘Since then, I have heard they are now accepting documents like contracts, invoices and registers, with the information blacked out to comply with data protection. But it’s been hanging over me since September and it’s awful because I know with HMRC you need to pay in big chunks or you are threatened with going to prison.
‘Even without this I can’t see how I can continue. It’s got to the point where I can’t afford to live in London any more. It’s crazy. I will have to travel every day to take my children to school and will have no job. It’s such a waste as I’m a qualified, experienced person but I won’t be able to afford to work.
‘The lady at HMRC told me unofficially that they want to clamp down on what they’re paying. When I said I was not really the most financially minded person, she said you need to make sure your accounts are in order, because this is just the start and they are going to be doing even more checks.
‘Basically they are making it even harder for people to claim.
‘What I don’t understand is you tailor taxes to different businesses, especially to childminders, so why is this not the case with working tax credits also?
‘Even without benefits I am making my business work, so it is viable, but I am just scraping by and I am a skilled childcare worker, as I used to be a supervisor at a nursery until I was forced to leave because the hours were too long. But I still work a ten-hour day with no breaks. I’m around 24/7 for my parents and children and I’m one of the only childminders in the area.
‘It’s ridiculous that I’m highly qualified in childcare but I won’t be able to work in it.’
New Eligibility for Working Tax Credit
HMRC is contacting some self-employed recipients of Working Tax Credit whose average hourly profit is less than the National Minimum Wage, which is currently £6.70 per hour and will rise to £7.20 in April. < BR>
Your self-employment now needs to be:
- done on a commercial basis, with a view to making a profit
- done regularly and in an organised way
You may not qualify if you do not:
- make, or plan to make, a profit
- have good business records
- work regularly
- follow regulations for your trade or profession
Requested information may include:
- records of earnings and hours worked
- invoices for the work you have done
- receipts for expenses
- summaries of orders or payments received
- a business plan
- how the activity is organised and promoted