Salary Sacrifice for Nursery Fees: A Working Parent's Guide

Nursery fees are one of the biggest costs working parents face, and many families are looking for sensible ways to make them more affordable. One option that often gets overlooked is salary sacrifice childcare, which lets you pay some of your nursery costs before tax. In this guide we explain how it works, who it suits, and how to estimate what you could save.

What is salary sacrifice childcare?

Salary sacrifice is an arrangement where you agree to give up part of your gross salary in return for a non-cash benefit. With the workplace nursery benefit, that benefit is the cost of your child's nursery place. The key advantage is timing. Because the money comes out of your pay before income tax and National Insurance are applied, you are paying nursery fees from untaxed earnings rather than from what is left after deductions.

This is set out in law under Section 318 of the Income Tax (Earnings and Pensions) Act 2003. It is a long-standing benefit, and it applies specifically to nursery care rather than to all forms of childcare.

How much could you save?

The saving comes from the tax and National Insurance you no longer pay on the portion of salary you sacrifice. As an estimate, a basic-rate taxpayer typically saves around 28%, while a higher-rate taxpayer could save up to 47%. The exact figure depends on your earnings, your tax band, and your nursery fees, so it is always worth running your own numbers.

The easiest way to see what this means for your family is to try a quick estimate using your real nursery costs.

Once you can see the figures, it becomes much clearer whether the workplace nursery benefit is right for you. Remember these are estimates, and your personal circumstances will affect the outcome. We cannot give individual tax advice, so if you are unsure it is sensible to check your own position carefully.

Things to check before you sign up

First, the workplace nursery benefit and Tax-Free Childcare cannot be used at the same time. They are mutually exclusive, so you will need to decide which one works better for your family. For some parents, salary sacrifice through the workplace nursery benefit offers the larger saving, but this is not true in every case, which is another reason to compare the numbers.

Second, salary sacrifice reduces your gross pay, which can have knock-on effects. It may influence things like mortgage affordability assessments or certain earnings-related benefits. These effects are often small, but it is worth being aware of them before you commit.

Third, the benefit needs to be offered through your employer. The good news is that setting it up is straightforward. Kinsail is the UK's only zero-fee workplace nursery benefit provider, which means parents pay no fee to use the benefit. There is also no charge to you as a parent; Kinsail's management fee is a straightforward percentage paid by the employer.

Is it worth it for your family?

If you have a child in nursery and you pay income tax, salary sacrifice childcare is well worth exploring. The savings can be meaningful across a full year, and the process is simple once your employer is set up. Start by checking the calculator above, compare it against Tax-Free Childcare, and then speak to your employer about offering the benefit. A little planning now could make a real difference to your monthly budget.