(This note is not part of the Regulations)
Section 17(9) Children Act 1989 (as amended by paragraph 16 of Schedule 3 to the Tax Credits Act 2002) provides that, where a local authority provides services for children in need and their families, no person shall be liable to repay the cost of those services if he or she is in receipt of working tax credit, or of any element of child tax credit other than the family element. Sections 17A and 17B of the Children Act contain similar provisions relating to direct payments and vouchers. Section 17(12) (as added by paragraph 16(3) of Schedule 3 to the Tax Credits Act) allows the Treasury to make regulations deeming a person to be in receipt of the credit or element.
These Regulations are made to remove the possibility of circularity in a small number of cases, due to the interaction between the tax credit and Children Act rules. A family may be in receipt of working tax credit, or child tax credit in excess of the family element, due only to the fact that it is incurring child care costs. If the local authority then provide for free child care, that may reduce the family’s tax credit entitlement, to a level where (under the Children Act) they have to repay the cost to the authority. That will in turn increase their tax credit entitlement (and so on). These Regulations provide that where local authorities provide free day child care, they can ignore the effect of that free provision of child care on the family’s actual tax credit award.