Providing a nursery can be a powerful way to attract and retain staff, with childcare costs in the UK among the highest in the world.
Tax relief is available to employers providing workplace nurseries as long as certain criteria are met. These requirements are strict; many childcare provision schemes fall short of the qualifying conditions and are therefore taxable as a benefit in kind.
Broadly, where childcare is arranged by the employer and provided on-site it will be eligible for the tax exemption. However, due to limitations on space and the practicalities of running a nursery alongside their normal business this option is not viable for many employers.
To mitigate this, the legislation allows for multiple employers to team up to provide tax-exempt childcare to all of their employees, where the partnership requirements are met. These include that the employers must take real and substantial responsibility for the financing and management of the childcare provision.
This does not necessarily require employers to have direct responsibility for the care of the children, or the day-to-day running of the setting, but they should be closely involved in its management beyond giving occasional advice and/or rubber-stamping decisions.
To meet the financial responsibility test, employers need to show a substantial commitment to funding the facility and bearing the associated risks (i.e. losses). It is not usually sufficient for an employer simply to pay a token fixed cost per employee or child.
If you are considering offering a workplace childcare scheme, contact us to discuss the most tax-efficient way to set it up.
