Is workplace nursery childcare tax-free for employees?

Full answer

The workplace nursery exemption lets employers provide childcare with no taxable benefit-in-kind charge for the employee and no Class 1A National Insurance for the employer, regardless of how much the place is worth. This is far more generous than the closed childcare voucher and directly-contracted childcare schemes, which were capped (GBP 55 a week for basic-rate employees) and shut to new joiners in October 2018. To qualify, several conditions must all be met. The care must be for the employee's child or stepchild whom they maintain, or a child resident with them. The premises must not be domestic premises. Crucially, the employer must be wholly or partly responsible for financing and managing the provision of the care - simply paying a third-party nursery's invoice does not qualify. Where premises are shared with other employers under a joint scheme, each participating employer must take on management and partial funding responsibility, not just contribute cash. This last point matters because some commercial 'workplace nursery' arrangements use salary sacrifice routed to a partner nursery. HMRC has challenged schemes where the employer's involvement is purely financial with no genuine management responsibility, so the structure must be set up carefully. Worked example (mechanism): an employer runs an on-site creche and gives an employee a place worth GBP 12,000 a year. Because the exemption applies, the employee pays no Income Tax (saving GBP 4,800 at 40% in 2026/27) and no NI on it, and the employer pays no Class 1A. If the same value were paid as taxable salary, both would face Income Tax and NI. The exemption can run alongside Tax-Free Childcare and the funded free-hours scheme, but not for the same costs. Use a take-home pay calculator to compare a qualifying nursery benefit against taxable salary, and confirm the conditions on gov.uk before relying on a provider's scheme.

Try the calculator