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No Further Action

Childcare Payments

Date of publication: 10 December, 2021

No Further Action Decision – Summary

Part of the IMA’s role is to monitor legislation to make sure it upholds the rights of EU and EEA EFTA citizens to live in the UK and Gibraltar, to study, to work and to raise their families as they did before Brexit.

While considering the Childcare Payments (Miscellaneous Amendment) Regulations 2021 (the Regulations) the IMA identified that the Regulations put in place arrangements so that EU and EEA EFTA citizens with pending or late applications to EU Settlement Scheme (EUSS) are able to receive compensation for backdated childcare tax relief (TFC) once their applications are granted.

The explanatory notes to the Regulations explain that this is necessary due to the design of HM Revenue and Customs’ (HMRC) digital system.

Whilst, neither this legislation or the legislation which deals with eligibility (The Childcare Payments (Eligibility) Regulations 2015) appears to be directly in breach of the Withdrawal or Separation Agreements (the Agreements) the IMA was concerned that the need for compensatory payments, albeit backdated, would seem to be less than ideal. This is particularly so where it may take many months for an EUSS application to be determined and could potentially lead to difficulties in paying for childcare consequently preventing EU and EEA EFTA citizens from fully enjoying their rights under the Agreements.

Formal enquiries were made with HMRC to better understand whether the processes in place for parents are operating in a way which enables those with pending EUSS applications to apply and receive payments.

Summary of Actions and Evidence

In response HMRC explained that TFC is a work incentive scheme that helps working parents with their associated childcare costs.  Parents apply for childcare accounts for each of their children.  Where a parent needs a status to be eligible, which requires a decision from another government department, HMRC will standardly treat them as ineligible until they obtain that status.

However, it advised that EEA and Swiss national parents can be treated as in the UK for the purposes of TFC while their application for EUSS status is pending even if that application was made after the deadline for the EUSS (30 June 2021). This means that they will be treated in the same way as a parent who made an application by 30 June 2021. This also applies to parents in scope of the Withdrawal Agreement or EEA EFTA Separation Agreement where they are joining a family member in the UK after 30 June 2021. A digital solution was put in place to aid parents to select an appropriate status when applying online

HMRC said that because of this digital solution it now does not need to rely on the payment of compensation in most cases, although this remains an additional safeguard to ensure that parents do not lose out inadvertently.

Summary of Decision

On the basis of the information available at this point in time, the IMA has determined that in light of the decision to treat parents who have made an application to the EUSS both before and since 30 June 2021 the same insofar as TFC is concerned, the digital solution in place to assist parents when selecting a status and the safeguard of the compensation scheme, that there is no evidence that EU and EEA EFTA citizens are being prevented from properly enjoying their rights under the Agreements and that no further action should be taken at this time.

However, for the avoidance of doubt, this outcome does not preclude the IMA from acting further should matters of concern in relation to TFC and how it applies to EU and EEA EFTA citizens arise in the future.

The IMA encourages citizens with relevant rights to report any issues experienced in enjoyment of them. In addition, the IMA will continue to monitor this issue generally.