Most childcare salary sacrifice options have gone. Childcare vouchers closed to new entrants in 2018, and the government now steers parents towards Tax-Free Childcare. One route still keeps its full income tax and National Insurance exemption, with no upper cap: the workplace nursery scheme. It is powerful for the right employer, but it only works if it genuinely meets HMRC's conditions, which is why it needs setting up with care. This page explains how it works, the saving, the conditions, and how we handle the payroll side. It sits under our salary sacrifice service.
This is one scheme within salary sacrifice. For the full picture, see our salary sacrifice overview and the employer's guide.
What it is
A workplace nursery scheme lets an employer provide childcare to staff and meet the cost through salary sacrifice. The employee gives up part of their gross salary, and that pay goes towards a nursery place instead. Because a workplace nursery qualifies for a specific tax exemption, the sacrificed pay is free of income tax and National Insurance, and there is no upper limit on the exempt amount. That combination is rare, and it is what makes the scheme worth considering despite the effort of setting it up.
Why it still works when vouchers do not
The old childcare voucher scheme, run through salary sacrifice, closed to new entrants in October 2018. Since then the main government support has been Tax-Free Childcare, which sits outside payroll. The workplace nursery exemption is separate and was left in place, which is why it has become the main way an employer can still offer tax-efficient childcare through salary sacrifice. As more employers look for meaningful benefits, interest in it has grown.
The saving
The saving works like any salary sacrifice, with one important difference: there is no cap on the exemption. The employee saves the income tax and National Insurance on the sacrificed pay, and the employer saves employer National Insurance on it. Because a full nursery cost can be significant, the saving can be larger than with capped benefits, provided the scheme genuinely meets the conditions.
The conditions that must be met
This is the part to take seriously. The exemption only applies where the employer is genuinely involved in providing and managing the childcare, not simply paying a nursery's invoice on an employee's behalf. HMRC sets specific tests around the employer's role and has challenged commercially marketed schemes that do not meet them. A workplace nursery scheme is therefore not something to switch on lightly: it needs to be structured correctly, with proper advice, so the exemption actually holds.
Because the conditions are strict and have been tested by HMRC, we set the payroll side up alongside proper advice on the structure, rather than assuming an off-the-shelf scheme qualifies. Talk to us before committing.
What to watch for
- The conditions must genuinely be met. If the employer's involvement does not satisfy HMRC's tests, the exemption can fail.
- The minimum wage floor. As with any sacrifice, it cannot take an employee's cash pay below the National Minimum Wage.
- Statutory pay. A lower gross salary can affect maternity, paternity and sick pay, which matters for parents in particular.
How we help
Our part is the payroll: setting up the sacrifice correctly, applying the exemption, checking the minimum wage floor every run, and producing clear payslips, working alongside whoever advises on the scheme structure. We are a South Wales payroll bureau with more than 60 years of combined experience, CIPP members and Chartered Accountants (ICAEW), ICO registered and Cyber Essentials certified. If a workplace nursery scheme is something you are considering, talk to us about your payroll or see ourpricing.