Employer-supported childcare

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Employer-supported childcare
Complete exemption ― workplace nurseries
Limited exemption ― childcare vouchers (closed to new entrants from 4 October 2018)
Childcare provision by the employer outside of the complete and limited exemptions
How do employer-provided childcare benefits affect tax credits?
‘Tax-free’ childcare from 2017

The provision of childcare by the employer is a popular method of incentivising staff with children as it allows all or part of the childcare costs to be funded by the employer free of income tax and national insurance contributions (NIC).

The interaction between employer-supported childcare and the Government ‘tax-free’ childcare scheme introduced in 2017 is considered at the end of this guidance note.

Complete exemption ― workplace nurseries

The provision by the employer of a workplace crèche or nursery for the children of employees and directors is completely exempt from income tax and NIC if:

•childcare is offered to all employees (or at least all employees in that particular location)
•the employer has some responsibility for managing and financing the provision of care, and
•the childcare facility has the appropriate registrations and approvals

ITEPA 2003, s 318

The childcare facility does not have to be based at the employers’ premises. It can be in other premises as long as they are not used wholly or mainly as a private residence.

ITEPA 2003, s 318(4)

Broadly, the child must be under 16 (17 if the child is disabled), be a child or step-child of the employee / director and the employee / director must have parental responsibility for the child, as defined in ITEPA 2003, s 318B(5).

ITEPA 2003, ss 318(1), (3), 318B(2)

For more information on the complete exemption and a flowchart to help you decide whether a workplace crèche or nursery qualifies, see the Employer Helpbook E18 .

See also the Childcare and workplace nurseries guidance note (subscription sensitive).

Limited exemption ― childcare vouchers (closed to new entrants from 4 October 2018)

There is a limited exemption of