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HMRC internal manual

Employment Income Manual

Benefits: exemption for workplace nurseries: commercially marketed nursery schemes: background: how the schemes work: contents

There are a number of commercially marketed schemes which set out to exploit the benefit-in- kind exemption for workplace nurseries in Section 318 ITEPA 2003 (see EIM21900onwards). There is no statutory bar that prevents employers from entering into partnership arrangements with commercial nursery providers. However, the employer must engage with the commercial provider in such a way that he is “wholly or partly responsible for the financing and managing the provision of the care.”

How the schemes work

Many of the schemes that fail to comply with the statutory provisions follow a similar pattern. They may have some or all of the following features or variants on them:

  • the employee enters into a salary sacrifice, giving up an amount of pay equal to the cost of the nursery place which is to be provided
  • the employer pays for a nursery place for the employee’s child. This may be at a nursery run by the scheme promoter or at an independent nursery, depending on the scheme
  • in addition to paying the nursery fee the employer pays the nursery an additional sum, typically £400 per annum per place
  • the employer appoints the scheme promoter to act as their ‘agent’ at meetings of the nursery management committee (though in practice the employer has no real say at all in the way the nursery is run).

The scheme is normally offered to employers as a package. Once an employer and one or more of their employees have agreed to participate the scheme promoter makes all the arrangements, other than the salary sacrifice.

For further guidance on how to deal with these schemes, see:

EIM21971 Tax consequences of workplace nursery schemes
EIM21972 Dealing with approaches from employers
EIM21973 Dealing with disputes