EIM21972 - Benefits: exemption for workplace nurseries: commercially marketed nursery schemes: dealing with approaches from employers


Employers and employees are free to enter into whatever contractual arrangements they choose. But you cannot comment on the tax consequences of the proposed arrangements (and in particular the effectiveness of the salary sacrifice) until they have been put into effect. This is not an area where HMRC operates any kind of 'clearance' procedure, nor do we give 'pre transaction rulings'. See also EIM21960.

However if the childcare arrangements are as described in EIM21970 you can tell the employer that if the salary sacrifice is effective HMRC’s view is that the childcare benefit provided for employees under the scheme does not qualify for exemption under Section 318 ITEPA 2003. The employer should therefore make a return of the benefit on forms P11D at the end of the year.

While childcare benefits are chargeable to tax (except where Section 318 applies) they are not subject to the extended Class 1A NIC charge that applies to most other taxable benefits from 6 April 2000. The Class 1A exclusion applies to all childcare benefits, not just those that are exempt from tax. From 6 April 2005 NICs and tax rules were aligned. Class 1A NICs are not due if Section 318 exemption applies. However, if childcare does not qualify for s318 exemption it is chargeable to income tax under the benefits code and Class 1A NICs must be accounted for

For guidance on dealing with disputes if the employer or employee will not accept HMRC’s view, see EIM21973.