Workplace Nursery Salary Sacrifice vs Tax-Free Childcare for Higher Earners (2026/27)

Two very different childcare schemes

Working parents in the UK can get help with childcare costs in several ways. Two of the most relevant for employees are Tax-Free Childcare and the workplace nursery benefit. They look similar from a distance but work in completely different ways, and the better choice often depends on how much you earn.

This is especially true for higher earners, because one scheme shuts the door at GBP 100,000 of income while the other does not.

Tax-Free Childcare in brief

Tax-Free Childcare gives a government top-up of GBP 2 for every GBP 8 you pay in, up to GBP 2,000 per child each year (more for a disabled child). The catch for higher earners is the eligibility rule: you cannot use it if either parent has adjusted net income over GBP 100,000.

That single cliff edge removes the scheme for many people in the very band where childcare and tax pressure are both highest.

The workplace nursery benefit

The workplace nursery benefit works through salary sacrifice. You give up an agreed amount of gross salary and your employer provides nursery care that meets HMRC's conditions. Where those conditions are met, the sacrificed amount is free of income tax and employee National Insurance, with no statutory monetary cap and no income limit.

Because it reduces gross pay, it also lowers your adjusted net income, which can have valuable knock-on effects.

Worked example

Daniel earns GBP 110,000 and pays GBP 12,000 a year in nursery fees. He is in the GBP 100,000 to GBP 125,140 band where the Personal Allowance tapers and the effective marginal rate is 60%.

• He cannot use Tax-Free Childcare because his income is over GBP 100,000.
• Through a compliant workplace nursery benefit, he sacrifices GBP 12,000 of gross salary for the nursery care.
• His adjusted net income falls from GBP 110,000 to GBP 98,000, restoring his full GBP 12,570 Personal Allowance.
• The sacrificed GBP 12,000 escapes income tax and 2% employee NI, and the band it sat in carried a 60% effective rate.

The combined effect can save Daniel several thousand pounds compared with paying the same fees from taxed salary.

Quick comparison

• Income limit: Tax-Free Childcare stops at GBP 100,000; workplace nursery has no income limit.
• Cap: Tax-Free Childcare gives up to GBP 2,000 top-up per child; workplace nursery has no monetary cap on the relief.
• Mechanism: Tax-Free Childcare is a top-up on payments; workplace nursery is salary sacrifice that lowers taxable pay.
• Availability: Tax-Free Childcare is open to most working parents; workplace nursery needs a compliant employer arrangement.

Watch the conditions

The workplace nursery benefit only qualifies if the employer genuinely meets HMRC's partnership and management requirements. Aggressively marketed schemes that fail these tests can be challenged. You also cannot use Tax-Free Childcare at the same time as receiving certain employer childcare support, so the schemes are usually an either-or choice.

This is general information, not financial advice. To compare the take-home impact of salary sacrifice, use the salary sacrifice and take-home pay calculators on CalcHub, and confirm the eligibility rules for both schemes on gov.uk.