HMRC have recently issued some guidance on criteria to be met for exempting the provision of workplace nurseries. HMRC believe the majority of workplace nursery partnership schemes satisfy the requirements, but they have been alerted to the fact that some scheme operators are advertising their services with HMRC approval, where the partnership requirements are not met.

A tax exemption was introduced in 1990 to encourage employers to provide nursery places for employees’ children on their own premises. In addition to this, partnership requirements were introduced to support employers who wished to provide support to parents but could not provide childcare on their own premises. This would be achieved by setting up a nursery partnership scheme, of which employers can have more than one, but the same criteria applies to all partnerships.

To qualify for the Workplace Nursery tax exemption, the following criteria must be met:

• Condition A – Broadly, the child receiving the care must live with the employee or the employee must have parental responsibility.
• Condition B – The premises used for the care should not be a private dwelling.
• Condition C – The premises must be made available by the scheme employer alone or the partnership requirements must be met.
• Condition D – The scheme under which care is provided must be open to all employees.

As seen at condition C, there is an alternative to the employer’s premises test which can be utilised providing all other conditions are met. The employer can enter into partnership with a commercial nursery provider, but they must still satisfy the requirement for the scheme employer to be wholly or partly responsible for financing and managing the provision of the care.

What this means in practice is that the employer must accept material financial responsibility and responsibility for managing the provision of care. In this context, taking financial responsibility requires more than purchasing places at a commercial nursery. Instead, employers will also be required to contribute to the overall running costs and share joint responsibility for any losses.

With regards to managing the provision of care, employers must take an active role in this, and should retain influence over management decisions and oversee the performance of staff providing childcare.

HMRC has provided some examples of actions that they say are not regarded as taking an active part in management and these include:

• an employer occasionally being consulted by nursery providers on broad childcare-related policies
• an employer having an occasional call with the nursery for a general update
• an employee having a place on a committee that has no particular brief

Workplace nursery salary sacrifice schemes which meet the conditions above remain approved by HMRC and employees will receive tax relief on the amount of salary sacrificed. However we advise you to ensure that every condition is met to avoid a nasty bill from HMRC which could go back over a number of years!

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