“(3) In a case where—
(a) a person would (in the absence of this subsection) be required by subsection (1) or (2) to repay an amount (“the repayable amount”) into a childcare account, but
(b) the childcare account has been closed, the person must pay the repayable amount to the person or body who was the account provider in relation to the account (“the relevant account provider”).
(4) The relevant account provider must—
(a) pay the top-up element of the repayable amount to HMRC, and
(b) pay the remainder of that amount to the person who held the childcare account.
(For provision about calculating the top-up element of an amount, see section 21.)”
It is a pleasure to serve under your chairmanship, Mrs Main. These are the first amendments that the Government wish to make to the Bill, and they concern the mechanics of payments made into child care accounts. Clause 23 sets out the rules that apply when a person refunds money that has previously been paid from a child care account. In most cases, that person is likely to be the child care provider.
There are a number of possible scenarios in which a child care provider might pay a refund to a parent. A parent might have paid in advance for child care that in the event was not needed, or they might simply have overpaid the child care provider by accident. Whatever the reason might be, the Bill needs to cater for cases where a child care provider needs to refund a parent. Where that happens, the child care provider is required by the clause to pay the money back into the child care account. The child care provider cannot pay the money directly to the parent, and for good reason: the amount that was originally paid out of the account will naturally contain both the parent’s money and the corresponding Government top-up payment. The same will be true of any refund to the parent. It will be a combination of funds from a parent and support from the Government.
Fundamental to the scheme is the principle that support from the Government cannot be used for purposes other than paying for qualifying child care. A mechanism is therefore needed to ensure that the part of the amount repaid that relates to the top-up payment cannot be used for other purposes, which would be the risk if the refund were paid direct to the parent. For that reason the clause requires the refund to be paid back into the child care account. That will ensure that Government top-up payments can be used only to pay for child care, and will allow the scheme to operate as intended.
However, there is a scenario that was not envisaged when the clause was originally drafted, which is when a parent is due a refund from a child care provider at a time after the child care account has been closed. When that is the case, there will by definition be no account into which to pay the refund, and therefore there is no way in which the refund could be properly paid. The amendments fill a genuine gap in the legislation. Amendment 18 introduces a requirement on child care providers to pay any refund to the account provider. It then requires the account provider to pay the part of the refund representing the top-up payment to Her Majesty’s Revenue and Customs before returning the balance to the parent.
Amendments 19 and 20 are merely consequential changes to clause 39. They address cases where a child care provider fails to meet its obligation to pay a refund to the account provider. Where that happens, the child care provider will be liable to pay the top-up element of the refund to HMRC.
It is a pleasure to serve under your chairmanship, Mrs Main. I have a question that follows on from our query on clause 22, because there seems to be an anomaly that has not been properly considered. We know that there could be more money in a child care account than would qualify for top-up payments. Again, as with clause 22, clause 23 does not seem to take any account of such circumstances. The clause specifies that refunds must be re-spent on child care or the top-ups must be repaid to HMRC. What about when there are funds in an account over and above the qualifying £2,000-a-quarter allowance to pay for child care that are subsequently refunded? As there is a chance that the original payment consisted of absolutely no top-up element, surely in those circumstances there would be no requirement for the parent, or the account provider, to repay any top-up sum to HMRC. That may be an unintended consequence.
While I fully understand the Government’s aim of ensuring that top-up payments cannot be skimmed off and used without the original funds being present, parents and their employers may be dissuaded from paying into a child care account any funds other than those that directly relate to the top-up payment, thereby undermining the Government’s aim of broadening the scheme, so that it is an easy tool through which parents can pay for child care and third parties can contribute. With particular reference to clause 23, have the Government considered circumstances in which a child care provider repays money that did not have any top-up element attached to it in the first place?
I thank the hon. Lady for her points, which provide me with the opportunity to clarify some of my comments on clause 22 this morning regarding the 80:20 ratio and the functioning of the payment mechanism. The child care account is solely for qualifying payments that attract a top-up payment. That is necessary to maintain a constant 80:20 ratio between account holder funds and top-up payments. I said earlier that that will make things simple for both parents and HMRC when they are, for example, dealing with withdrawals, and when the top-up element must be returned to HMRC.
In practice, however, HMRC will work with the account provider to offer a parallel overflow account—parents will be aware of it, but will not see it—for payments in excess of the upper limit; that will address the hon. Lady’s concerns. Overflow accounts will be helpful for some parents when, for example, total child care costs exceed the maximum qualifying amount for tax-free child care, or when they want to manage all child care payments in one place. It will also allow the account holder to deposit larger sums of money for child care costs and then draw down funds into the child care account up to the limit of their tax-free entitlement.
I want to clarify something. The scheme will operate as just one account from the parents’ point of view, but will operate as two parallel accounts from the other side. Is that right?
To clarify, that is exactly so. The parent will not see the overflow account. It is in the infrastructure and is part of the enabling architecture. That is about providing parents with clarity and security, which is key when parents are depositing money, particularly if they are depositing more than is required. It is about ensuring that funds are secure and accessible in the right way, and that payments out of and into the account, which could be refunds, are made in a straightforward and simple way.