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HMRC internal manual

Employment Income Manual

Benefits: exemption for workplace nurseries: responsibility for financing: to 5 April 2005

Section 318(7)(c) ITEPA 2003

The “responsibility for finance” test for jointly run workplace nurseries (see EIM21920) requires significantly more than merely buying-in places from a commercial nursery whether on an ad hoc or a more structured basis. There must be some real and substantial commitment to funding the facility or providing it with capital.

Such a commitment may take the form of an agreement to meet a set proportion of the overall cost of providing the care or it may be a guarantee to indemnify against losses a primary care provider who would otherwise be at real risk of losses.

In the case of a facility which was newly established or of doubtful financial viability the commitment may take the form of a long term undertaking to pay a fixed periodical contribution (possibly expressed as the price of a given number of places) where that contribution is calculated to ensure overall financial viability.

Arrangements in which the employer’s participation in financing is little more than a token gesture, purporting to meet the statutory test but without real responsibility falling on the employer, do not meet the statutory test.

Remember that before 6 April 2005 the exemption does not apply at all if the care is taxable as earnings within Section 62 ITEPA 2003, for example because the childcare has been paid for out of the employee’s earnings or the childcare represents an application of the employee’s earnings.