Tax break to encourage 'mumpreneurs' to start their own businesses

Budget measure will help mothers set up enterprises by extending childcare vouchers to the self-employed. By Jane Merrick and Sarah Morrison

Parents who set up their own businesses would be in line for a £900-a-year tax break under plans for this year's Budget being considered by George Osborne. The Chancellor is looking at extending childcare vouchers, which help 700,000 working parents save on the cost of a childminder or nursery, to self-employed mothers and fathers.

The move would boost so-called "mumpreneurs" – new mothers who want to set up their own businesses so they can tailor their working hours around their children instead of returning to the office.

But it will also be seen as an attempt to stave off widespread dissent among middle-class parents who are set to lose their child benefit from next year.

The childcare vouchers plan has been backed by an increasingly influential group of David Cameron's female MPs on the Conservative Women's Forum and is understood to have caught the eye of Mr Osborne for inclusion in his March Budget.

The plan would cost the Treasury around £52m, but supporters say this is relatively inexpensive and would reap benefits within a few years by triggering new start-ups and helping to boost the economy.

Other more long-term measures include extending childcare vouchers to grandparents, who often help out with childcare but do not receive any money, and watering down Ofsted's regulation of childminders and nannies to encourage more people into those jobs and drive down costs.

The Chancellor believes the soaring cost of childcare is preventing women returning to work after giving birth, and the economy is missing out on a vast untapped reservoir of skills and talent. Mr Osborne and the Prime Minister have thrown their weight behind the "Start-up Britain" campaign to encourage entrepreneurship, especially among those who have not set up a business before.

Mr Cameron, in a speech on enterprise last week, said that "2012 has got to be the year when we go for it, the year that we light new fires of ambition in our economy, the year when we get behind Britain's grafters, do-ers, hard workers and entrepreneurs". At the same time, No 10 and the Treasury are keen to win back female voters who oppose the Government's plans to axe child benefit for middle-income earners and are turned off by the hardline austerity agenda. Mr Osborne is expected to confirm in the Budget that he will withdraw child benefit for all higher-rate taxpayers from 2013, saving £1bn a year, despite Mr Cameron's admission earlier this month that there were concerns that the move unfairly penalised single-earner households who earned just above the higher-rate threshold of £42,475. The Chancellor could soften the blow by staging the reduction.

Childcare vouchers allow employees to sacrifice up to £243 a month of their pre-tax salary, which can be paid towards Ofsted-registered nurseries, childminders or nannies. When children are older, the vouchers can contribute towards the cost of after-school clubs. Before last April, the vouchers applied to all taxpayers, but have since been restricted to basic-rate taxpayers. The new proposals would allow self-employed parents to also divert up to £243 a month to childcare costs, and be declared each year through tax self-assessment.

There are nearly 1.4 million self-employed people in the UK with a child under the age of 15. Women account for 46 per cent of Britain's economically active – ie, eligible for work – population, but make up only 26 per cent of the self-employed workforce.

A model drawn up by the Childcare Voucher Providers Association, backed by the Daycare Trust, shows that self-employed parents would receive a certificate at the end of the financial year showing how much they had paid in vouchers. The individual would then claim back the tax liability as a deductible expense as part of their self-assessment. If they had paid the full £243 a month in vouchers, they could claim back 32 per cent of this – equal to NI and income tax savings for a basic-rate taxpayer – a rebate of £932.80, or over £1,800 if both parents are self-employed.

Harriett Baldwin MP, a member of the Conservative Women's Forum, said: "We are actively exploring affordable ways in which we can tackle the lack of childcare help for self-employed parents."

Julian Foster, the managing director of Computershare Voucher Services, one of the companies operating childcare vouchers, said: "Vouchers are an effective and successful means of supporting employed parents with the cost of childcare, helping basic-rate taxpaying parents save up to £933 a year. This can be easily extended to help the self-employed and those wanting to start up their own business."

Natalie Lue, 34, Surrey

Natalie lives with her husband, Emmon, and two children, Saria, four, and Nia, two. She has been self-employed for four years and is an author and full-time blogger for the relationship website baggagereclaim.com. She decided to leave her firm when she had her first child. When she was first self-employed she was working up to 50 hours a week but struggling to make any money at all.

"Back then, both my children were going to their childminder. If it was a busy week, it could cost up to £400. If you multiply that across a whole month, you can see it cost an absolute fortune. I was just working to get the money to send my kids to childcare. There were definitely less options for someone who was self-employed. It's a convoluted process."

Gigi Eligoloff, 45, South-west London

Gigi lives with her husband, John, and two children, Kit, five, and Delphi, one. After working as a TV producer for 15 years, she left to set up the website MumsRock.com four years ago. Struggling to make ends meet, she sold the firm last year, and became an editor for the site.

"Nursery is expensive, £50 a day, and when you have no income, you can't offset that against tax. With the best will in the world, if you want to run a company, you are hampered at every turn by childcare. I could only do it because I had savings, but it shouldn't be that way. If the Government want people to be entrepreneurial, they have to support them with more than words. Otherwise they end up bleeding themselves dry."