The loophole, which was revealed last week, would have affected only parents on low incomes who pay for their childcare weekly as they would have been ineligible for any extra financial help with their childcare costs during school holidays, when fees traditionally increase substantially.
The scheme, as it had been envisaged by the Government, was based on the average weekly childcare cost and any increase in these costs during holiday periods would not have counted unless they were at least four weeks long, thereby excluding all school breaks except the summer holidays.
However, the Inland Revenue has now acted to close the financial loophole before it opened. A spokeswoman said, 'The paymaster general has listened to the concerns raised by parents who are paying their childcare costs weekly. The system is going to be changed to enable them to take account of holiday costs.
She added, 'The paymaster general has instructed officials to produce an addition to the rules in good time for the start of the new tax credit system in April.'
The speed at which the Government moved to close the loophole was praised by the Daycare Trust, which earlier this month published a guide to the new tax credits. Daycare Trust director Stephen Burke said, 'We are very pleased that the Treasury and the Inland Revenue are amending the way the new childcare tax credit will work for parents who need childcare during half-term and the school holidays before the tax credit scheme begins.'
From April the child tax credit will be paid to the main carer in the family -usually the child's mother. As now, parents on low incomes will receive help with up to 70 per cent of their childcare costs.
