SE21970 - Benefits: exemption for workplace nurseries: commercially marketed nursery schemes: background: how the schemes work

For some time now, we have been aware of commercially marketed schemes which set out to exploit the benefit-in-kind exemption for workplace nurseries in Section 155A ICTA 1988 (see SE21900 onwards). Until May 2000, Special Compliance Office (Birmingham) dealt with these schemes centrally. That arrangement has now ceased and Districts will need to know how to handle approaches from employers who are considering adopting these arrangements.

How the schemes work

The schemes all follow a similar pattern, as follows:

• 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