Currently, any funding that nurseries receive is considered income and is taxed accordingly.
Rachel Jones, managing director of Fit 'n' Fun Kids in Cornwall, claims that if the Government ring-fenced the business tax that private nurseries and out-of-school clubs are charged on funding for threeand four-year-old places, and training, apprenticeships and graduate placements, then they could put the money back into their provision and reduce fees for parents.
Fit 'n' Fun Kids is registered as a limited company, which means that the setting is taxed on any profits it makes.
Ms Jones argues that not only would the ring-fencing of taxation help parents with childcare costs and lift barriers to them returning to work, it would also help nurseries facing the same challenges in the current economic climate.
She also suggests the Government change the childcare 'exempt' category for VAT to zero-rated, which would allow private nurseries to claw back VAT paid out.
The provision of childcare services by registered daycare providers is exempt from VAT. This means that nurseries cannot register for VAT and cannot recover any VAT on any purchases of good and services.
If VAT was zero-rated for childcare providers, as it is in the construction industry, settings could claim back tax for any equipment or resources purchased without having to add VAT to their fees.
Last week Ms Jones raised the issue with deputy prime minister Nick Clegg, who was on a visit to Newquay.
The nursery owner has also broached the subject with the MP for Truro and Falmouth, Sarah Newton, and spoken to her Local Enterprise Partnership, which has said it will lobby the issue in Parliament.
Ms Jones said, 'Our nursery has been in business for ten years and demand is steadily increasing. We do all we can to help families by providing wraparound and out-of-school care and transportation services, along with running support creches.
'If taxation was ring-fenced then nurseries wouldn't struggle as they could reinvest the money back into the setting, which could also be used to support parents with high-quality, affordable childcare. An audit could be carried out to ensure settings are putting the money back into the nursery.'
Claire Schofield, the National Day Nurseries Association's director of membership, policy and communications, said, 'An important step to help create equality for the whole of the nursery sector would be to give nurseries a zero-rated VAT status. The increase to 20 per cent has impacted on the sector's ability to invest, and increased day-to-day running costs. Research undertaken by NDNA in March 2011 indicated how this was seen as a major challenge by nurseries and was increasing pressure on parental fees at a time when parents are already struggling with inflation and cuts to tax credits. NDNA also wants to see changes to business rates, with a special category for nurseries to acknowledge their role as vital parts of the local economy and support for parents.'
Neil Leitch, chief executive of the Pre-School Learning Alliance, said, 'I do understand the sentiment for more revenue than is available, but the bigger issue is that if the Government paid the correct level for threeand four-year-old funding, then nurseries wouldn't be subsidising it, and more money would be available for nurseries to put back into their business.'
