Providing a nursery can be a powerful way to attract and retain staff, with childcare costs in the UK among the highest in the world.
Tax relief is available to employers providing workplace nurseries as long as certain criteria are met. These requirements are strict; many childcare provision schemes fall short of the qualifying conditions and are therefore taxable as a benefit in kind.
Broadly, where childcare is arranged by the employer and provided on-site it will be eligible for the tax exemption. However, due to limitations on space and the practicalities of running a nursery alongside their normal business this option is not viable for many employers.
To mitigate this, the legislation allows for multiple employers to team up to provide tax-exempt childcare to all of their employees, where the partnership requirements are met. These include that the employers must take real and substantial responsibility for the financing and management of the childcare provision.
This does not necessarily require employers to have direct responsibility for the care of the children, or the day-to-day running of the setting, but they should be closely involved in its management beyond giving occasional advice and/or rubber-stamping decisions.
To meet the financial responsibility test, employers need to show a substantial commitment to funding the facility and bearing the associated risks (i.e. losses). It is not usually sufficient for an employer simply to pay a token fixed cost per employee or child.
In the current landscape, where the demand for childcare spots is exceptionally high, it’s critical to exercise caution when evaluating childcare programs. Unfortunately, some individuals are promoting non-compliant schemes under the guise of legitimacy. These programs may initially seem compliant, but a thorough review often reveals otherwise. Many clients have approached us for evaluations, underscoring the importance of vigilance. The true nature of a childcare program can only be accurately assessed by those who use it directly. Therefore, it is essential to scrutinize unfamiliar childcare providers thoroughly before committing to their services to ensure they meet the required standards and regulations.
If you are considering offering a workplace childcare scheme, contact our expert below to discuss the most tax-efficient way to set it up.
