Did you know that no tax charge arises when an employer provides a nursery place for an employee’s child at a workplace nursery—as long as the right conditions are met? Unlike other childcare schemes, such as vouchers or employer-supported childcare, the tax exemption for workplace nursery places comes with no upper limit.
But how does it work, and can smaller businesses take advantage of it? Let’s break it down.
How Does the Tax Exemption Work?
To benefit from the exemption, the employer needs to either:
- Provide the premises where the care is delivered, or
- Meet the partnership requirements.
This second option makes it possible for smaller businesses, who may not have the resources to open their own workplace nursery, to still provide tax-exempt childcare places for their employees.
To meet the partnership requirements, the care must be provided under arrangements involving the employer, where the employer shares responsibility for financing and managing the provision of care.
Setting Up a Partnership with a Commercial Nursery
For smaller businesses, partnering with a commercial nursery is a great option. However, to qualify for the tax exemption, the employer needs to do more than just pay for nursery places. You must share the financial risk of running the childcare facility and take joint responsibility for managing it.
This means contributing to total costs—not just paying a set amount per child—and being involved in management decisions like monitoring staff performance or allocating nursery places.
Beware of Commercially Marketed Schemes
There are several commercially marketed schemes that claim to help businesses take advantage of this tax exemption. These schemes often include features like:
- Employees entering into a salary sacrifice scheme to cover the cost of a nursery place
- The employer paying for the nursery place, often through a scheme provider
- The employer making an additional payment (around £400 per year) towards the nursery’s costs
- And the employer appointing the scheme promoter to act on their behalf at the nursery’s management meetings.
While some of these schemes meet HMRC’s partnership requirements, not all of them do. If your business isn’t truly sharing in the financial risk and management of the nursery, you won’t qualify for the tax exemption, and a tax charge could arise.
Key Considerations for Smaller Employers
If you’re a small business looking to offer workplace nursery places, it’s crucial to do your homework when considering a commercially marketed scheme. Make sure that the scheme meets the partnership conditions set out by HMRC, so your employees can enjoy tax-free childcare without any unexpected charges.
Need Help Navigating Workplace Nursery Schemes?
Workplace nursery schemes can be a fantastic benefit for employees while saving businesses and staff money on taxes. But it’s essential to ensure the scheme you choose meets HMRC’s conditions.
If you’re considering offering workplace nursery places and want to be sure you’re on the right track, get in touch with Jon and the team today. We’ll help you navigate the rules and make the most of the available tax exemptions.
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