Childcare Counsel: How Workplace Nursery Schemes have been updated

Where HMRC's ‘workplace nursery scheme’ exemption applies, no liability to income tax arises in respect of the provision for an employee of care for a child. This is to encourage employers to provide nursery places for employees, either by opening a nursery on their own premises or by combining with other employers to jointly finance and run a nursery.

Although this type of scheme can be beneficial, employers and providers alike should be mindful of HMRC's recently issued updated guidance. This reflects HMRC's increasing concern about exploiting this tax exemption.

Such schemes would be where employers enter partnership arrangements with commercial nursery providers, in which the employer does not engage with the provider in such a way that they are ‘wholly or partly responsible for the financing and managing the provision of care’. For instance, an employer only paying a nominal fee to the nursery provider and only taking part in a meeting once a year. To qualify for this tax exemption, the employer is required to not only provide a significant part of the funding, but to also play a significant part in the management of the nursery. There needs to be ‘some real and substantial commitment to funding the facility and bearing the risks associated with operating a childcare facility’, and in terms of management, employers must be able to demonstrate that ‘in a real sense’ they play a part in management. Examples include having a role in appointing staff.