Workplace Nursery Scheme – Tax implications of childcare costs

If you joined a childcare voucher scheme prior to 4 October 2018, you could take up to £55 a week of wages, free of tax and National Insurance (NI), to be used towards childcare.

Access to the childcare voucher scheme closed on 4 October 2018 and was replaced by the tax-free childcare scheme whereby you can receive up to £2,000 per year for each child or £4,000 for disabled children. For every £8 you pay into an online childcare account, the government pays £2 to be used to pay your registered childcare provider.

Workplace Nursery Scheme

Employers may also provide childcare for their employees’ children tax free although this is subject to the benefit being available to all employees among other criteria. The scheme allows employers to either open and operate a nursery on their own premises or more commonly, work in partnership with a chosen nursery or nurseries to provide childcare for its employees.

The scheme is tax and NI exempt such that it enables employees to save tax and NI on all nursery fees, which can represent a significant saving together with providing a strong incentive for parents returning to work after having children.

Accessing the scheme

To access the scheme and enjoy the tax and NI savings, employees will have to agree a salary sacrifice arrangement, which effectively means giving up an amount of cash salary in exchange for the cost of the employer providing the workplace nursery.

HMRC requirements for the scheme

In order to meet HMRC’s requirements for the scheme to retain its tax and NI exemption status, the employer must make a financial contribution towards the running of the nursery that can be recovered from the NI savings achieved as well as participating in the management of the nursery e.g., having a representative attend key nursery management meetings.

In essence, the scheme can be provided to employees at a saving on NI or at a neutral cost, which makes it a very attractive incentive to include within an incentive offering to staff.

Employees who previously applied for the childcare voucher scheme prior to its cessation on 4 October 2018 may still continue to claim it together with the workplace nursery scheme.

How we can help

Gerald Edelman is able to advise and provide further guidance on the tax and NI implications of workplace nursery scheme.