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HMRC internal manual

Employment Income Manual

Benefits: exemptions for certain employer supported childcare from 6 April 2005: contents

Section 318A - D ITEPA 2003

Purpose of the legislation

Workplace Nurseries: Section 318 provides a narrow exemption from income tax and NIC where the employer has either established a workplace nursery at the business premises or has entered into arrangements with other employers for a jointly operated facility on premises provided by one of them and made care available to the children of employees. Benefits arising from the provision of a workplace nursery continue to attract unlimited exemption from charge to tax as employment income and NIC if the extended qualifying conditions are met.

Other childcare: Sections 318A - D came into force on 6 April 2005. The new rules are intended to encourage employers to choose from a range of childcare options to help employees with the costs of childcare. However, while the new measures extend the range of choices, the exemption is limited to £55 per week (£50 per week in year 2005-06) for both tax and NICs.

For employees who join their employer’s scheme on or after 6 April 2011 the exemption may be further restricted (see EIM22012).

Exemption from income tax: Section 16 Finance Act 2005 made employer supported childcare exempt from income tax. This applies for 2005-06 and subsequent years. Until this change was introduced the exemption only applied to benefits taxable under the benefits code. It was possible in certain circumstances for a charge to arise if the childcare was treated as earnings. FA 2005 removed the possibility of an earnings charge.

Childcare Vouchers Section 270A ITEPA 2003 see EIM16050 and subsequent pages.

Arrangement of guidance