Research into the impact of the childcare element of the working tax credit in five London boroughs found that parents were "confused by and suspicious of" the system.
Parents and providers said they lacked confidence in the mechanics of the system, with minority ethnic parents finding it harder to access childcare.
The report said childcare costs are still "significantly higher" than the rest of the country, meaning childcare is still out of reach for many parents.
Daycare Trust chief executive Stephen Burke said the system needed to "reflect the real lives of London parents, in a way that is easy for them to understand and access".
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