As the government encourages those employees who can safely resume duties to do so and school reopening is planned, thoughts turn to the youngest members of employees’ families and how they can be cared for. Some employers are considering setting up workplace nurseries. We discuss this below.
What is a Workplace Nursery?
A workplace nursery is a nursery provided by an employer for their employees to use. Under the ‘workplace nurseries exemption’, the cost of a place in a workplace nursery is completely exempt from Tax and National Insurance Contributions.
The exemption for workplace nurseries was introduced in 1990 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. This is often referred to as a workplace nursery partnership.
What qualifies as a workplace nursery?
To qualify as a workplace nursery, and therefore for childcare costs to be exempt from Tax and National Insurance, the care facilities must:
- comply with the registration requirements of the appropriate national registering body (for England this is Ofsted)
- be available to all employees
- provide childcare for all employees’ children, or children they have parental responsibility for
- provide childcare up to the maximum age its registration and approval allows for
- be wholly or partly financed or managed by the employer for the provision of care. (this means that the care provision can be sub-contracted by an employer without losing its tax exempt status)
- A workplace nursery may be located anywhere to suit those who use it, except if care is provided in a private house.
What are the benefits of workplace nurseries for employers?
• The employer saves on employers’ National Insurance Contributions.
• Workplace nurseries are a strong recruitment and retention tool.
• Workplace nurseries are extremely convenient for staff.
• The employer may be able to claim back Corporation Tax relief on costs associated with providing the nursery.
How do workplace nurseries benefit employees?
For many working parents with young children, a workplace nursery may enable them to be close to their children throughout the working day giving peace of mind about their child’s wellbeing and the quality of care they are receiving, as well as saving time by not having to drop them off and pick them up from other childcare facilities.
If an employee’s child has a place at a workplace nursery, the employee will not have to pay any Income Tax or National Insurance Contributions (NICs) on this benefit. This means that their full childcare bill is exempt from Tax and NICs.
The workplace nursery exemption is commonly provided through a salary sacrifice scheme, whereby employees exchange part of their salary for the childcare cost amount. This is then paid to the workplace nursery and the employee saves the amount of Tax and National Insurance. It is important to note that employers’ workplace nurseries were not affected by the introduction of Tax-Free Childcare. Employees are able to join a workplace nursery scheme offered by their employer even if they are in receipt of Tax-Free Childcare for other childcare costs.
Can employees still benefit from the workplace nursery exemption if it is run as a commercial nursery or crèche?
There is no issue with this. Employers running a commercial nursery or crèche can provide free or discounted childcare for employees and no Tax or National Insurance Contributions are due. However, this is provided that the child using the care is a qualifying child and the conditions of the nursery are met.
Corporation Tax relief for employers offering workplace nursery places to their staff
An employer can claim tax relief for the day-to-day running costs of providing workplace nursery places, for example, rent, rates, heating and lighting, staff wages, food and play equipment with a short lifespan. These costs are all deductible when working out profits for corporation tax purposes.
Many items used in a workplace nursery may qualify for capital allowances, including furniture, equipment used for heating, washing and cooking and more durable items of play equipment. An employer may also qualify for tax relief for the capital costs of providing premises for a nursery.
SRC-Time are one of the South East’s leading accountancy firms in advising individuals and businesses in all aspects of their accounting and tax affairs and we are able to assist in any issue raised above.
Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at email@example.com or speak with an account manager to get any process started.