Trying to juggle responsibilities as a working parent can be extremely difficult. Add the costs of childcare to the mix, and aiming to work whilst ensuring your child develops crucial learning and social skills can be more of a challenge than cleaning up after a child that’s had free reign with red finger paint in your lovely white kitchen!
Being able to put your little ones in a workplace nursery is of course the ideal situation for many people, but as an employer, are you aware of the tax benefits?
In addition to being a great way to support your employees with their childcare schedule, for employers who welcome the opportunity of mini team members (we think the job title of chief nappers is adequate), there are tax reliefs available.
To explain in more detail, we asked Christine Wise, Tax Manager from our Manchester office, to outline the tax benefits a workplace nursery can provide. So, grab that probably now lukewarm brew you forgot you made, and keep reading.
Tell us more Christine…
A workplace nursery is exactly what it says – provides childcare either at your workplace, or in other premises that the company you work for manage and finance, if they aren’t a private residence. Under the ‘workplace nurseries exemption,’ the provision of nursery places for staff are completely exempt from Tax and National Insurance Contributions. Many of the costs to the employer are tax deductible.
Announced in the Spring Budget, 30 hours of free childcare per week has now been extended to children as young as 9 months. This is a claim to the local authority, and doesn’t impose any restrictions to workplace nurseries, so could reduce the sacrifice required.
It’s also worth mentioning that this can extend up to 15-year-olds, so out of hours clubs like after school organisations can be included for older kids.
The best place to start is to explain what qualifies for a workplace nursery, as well as outlining the tax reliefs you can benefit from when offering in-house day care to employees.
What qualifies as a workplace nursery?
To qualify as a workplace nursery, and to essentially make sure that childcare costs are exempt from tax and National Insurance (NI), the facility must:
- Comply with the registration with requirements of the appropriate registering body.
- Be available for all employees.
- Provide childcare for all employees’ children, or children for whom they have parental responsibility for.
- Provide childcare up to the maximum age allowed by its registration.
- Be wholly or partly financed or managed by the employer for the provision of care.
This also allows smaller employers in the same vicinity to act in partnership and provide care across several companies at the premises of one. Under this scenario, one business will be the Scheme Employer and must take an active role in providing the nursery.
For the location of a workplace nursery, this can be anywhere suitable for those who will use it, provided the care and premises are arranged by persons including the scheme employer. The premises cannot be a private house, which precludes nannies and childminders.
Benefits of a workplace nursery
There are many benefits from both a parent’s perspective, and a tax saving perspective. For parents, it means they will have peace of mind about the wellbeing of their child and know the exact quality of care they are receiving. It of course will also save time and provide hassle free pick up/drop off routines!
If an employee’s child attends the qualifying nursery, they won’t have to pay any income tax or NI on this benefit. In other words, the full childcare bill is exempt from tax and NI contributions.
From an employer’s viewpoint, it can be an extremely strong recruitment and retention tool. Offering a convenient benefit for employees is a great way to keep your team happy and helps to create a supportive and inclusive work environment for parents.
You can also claim back costs associated with the nursery, but we’ll get onto that point in just a second…
Offering the benefit to staff
Most exempt benefits are provided to staff as part of their salary package, so offering nursery places to existing staff often comes as part of a salary sacrifice deal where the employee gives up the right to a portion of salary in exchange for the childcare. This also has a knock-on effect to pension contributions, which operate as a percentage of salary.
Employer responsibilities
To then meet HMRC’s requirements for the workplace nursery scheme to retain its tax and NI exemption status, it’s paramount that there is a real and substantial commitment to funding the facility and taking an active role in its management.
Workplace nursery tax relief
As I’ve already mentioned, provision of qualifying workplace nursery childcare is tax and NI free for staff. As an employer, you can also claim tax relief for the day-to-day running costs, such as rent, rates, heating and lighting, staff wages, and even equipment that the little ones can play with, providing it has a short lifespan!
These costs can all be deductible when working out your business profits for tax purposes. Various items that are used in a workplace nursery may also qualify for capital allowances, including furniture, heating, cooking appliances and items of play equipment that are more durable.
Its also possible that an employer may also qualify for tax relief for the capital costs of providing premises for a nursery.
We’re here to help
If you’re looking to offer a workplace nursery to your employees but aren’t quite sure where to start, we can help. To speak to one of our friendly advisors, send an email to info@djhmittenclarke.co.uk
