Is your business running a workplace nursery scheme? Key steps to remain tax compliant

HM Revenue & Customs (HMRC) has recently issued a warning to employers regarding the proper use of workplace nursery schemes.  

Business owners must have a thorough understanding of the rules surrounding workplace nursery schemes to remain compliant and avoid running the risk of any tax penalties.  

Understanding nursery schemes 

Nursery schemes, also known as workplace nursery schemes, are designed to help working parents with the cost of childcare.  

These schemes allow employers to provide childcare facilities either directly or through a third-party provider.  

In return, employees receive tax and National Insurance (NI) exemptions on the cost of childcare, making it an attractive benefit for both employers and employees. 

HMRC's warning 

HMRC has recently issued a warning to businesses regarding the misuse of nursery schemes.  

Businesses must understand that any attempt to use these schemes to reduce tax payments improperly will be met with substantial penalties. 

Key compliance requirements 

To ensure your business remains compliant with HMRC’s regulations, there are several key points to consider: 

• Ensure that the nursery scheme you provide genuinely offers childcare services. The scheme must be structured to provide real childcare benefits to employees. Any arrangement that appears to be a disguised payment will be scrutinised by HMRC. 

• Clear, legally binding agreements in place with third-party childcare providers. These agreements should outline the nature of the services provided, the cost, and the duration.  

• Ensure that all financial transactions related to the scheme are transparent and correctly recorded in your accounts. Inaccurate or misleading reporting can lead to investigations and penalties. 

• Verify the eligibility of employees participating in the scheme. The tax and NI exemptions apply only to employees who meet specific criteria set by HMRC.  

Your records should reflect the eligibility of each participating employee to avoid any issues if HMRC investigates. 

The consequences of non-compliance 

Non-compliance with HMRC’s regulations can result in severe consequences for your business, including: 

• Financial penalties 

• Reputational damage 

• Legal action 

If you have any concerns or need assistance with ensuring your nursery scheme meets HMRC’s requirements, our team of experienced accountants is here to help. Contact us today.