Workplace Nursery Scheme: A Complete UK Guide (2026)

What is the Workplace Nursery Scheme?

The Workplace Nursery Scheme is an employer-supported benefit that lets employees pay their registered nursery fees through salary sacrifice, meaning the fees come out of gross pay before income tax and National Insurance are deducted. Because the money is taken before tax, the employee pays less tax and National Insurance overall, so the real cost of the nursery place falls.

It is grounded in the workplace nursery exemption set out in Section 318 of the Income Tax (Earnings and Pensions) Act 2003. It is a distinct benefit from childcare vouchers, which closed to new entrants in 2018, and from the government's Tax-Free Childcare and funded hours, which are separate schemes with their own rules.

How does the Workplace Nursery Scheme work?

The scheme works through a partnership between the employer and a registered nursery, with the employee's fees paid by salary sacrifice. The employer enters into a formal arrangement with a registered nursery, contributing to the funding of the provision and taking a genuine role in how that funding is used. The employee agrees a variation to their employment contract, sacrificing part of their gross salary equal to their nursery fees. Those fees are then paid from gross pay, so income tax and National Insurance are calculated on the reduced salary.

The employer's involvement is not a formality. It is the heart of what makes the benefit legitimate, and it is the part that distinguishes a properly run scheme from one that simply reroutes an employee's own money.

Who qualifies for the Workplace Nursery Scheme?

Most employed parents with a child in registered nursery care can qualify, provided their employer offers the benefit and a few conditions are met:

• The child must attend a nursery registered with the relevant regulator: Ofsted in England, the Care Inspectorate in Scotland, Care Inspectorate Wales, or the relevant authority in Northern Ireland.
• The employer must hold a genuine arrangement with the nursery and contribute to its funding and management.
• The employee's pay must stay above the National Minimum Wage after the salary sacrifice.
• A written variation to the employment contract must be in place before the first deduction.
• The benefit runs from a child's birth up to the September after they turn five, when they start school.

Unlike Tax-Free Childcare and the funded hours, there is no income cap on the Workplace Nursery Scheme, which makes it particularly valuable to higher earners who are excluded from the other forms of support.

How much can you save?

Savings depend on how much tax you pay, so there is no single figure that applies to everyone, but they can be substantial. Because the fees come out of gross pay, a higher-rate taxpayer saves more than a basic-rate taxpayer on the same fees. Some parents save up to 47% on their nursery costs through the benefit. For a family paying a typical full-time nursery bill, that can run into thousands of pounds a year.

The exact figure depends on your salary, your tax band, and your nursery fees. The most reliable way to see your own number is to work out your savings here.

Workplace Nursery Scheme vs Tax-Free Childcare

These are two different schemes, and they cannot be used at the same time for the same child, so it is worth understanding the difference. Tax-Free Childcare gives you up to two thousand pounds per child each year, with the government topping up what you pay, but it is capped and is withdrawn entirely once either parent's adjusted net income exceeds one hundred thousand pounds.

The Workplace Nursery Scheme has no income cap and no government-set ceiling on its value, so for many families, and especially higher earners or those with larger nursery bills, it can be worth considerably more. The right choice depends on your income and fees, so it is worth comparing both for your own circumstances before deciding.

Workplace Nursery Scheme and HMRC compliance

The scheme relies on meeting the conditions in Section 318 ITEPA 2003, and HMRC has been clear that the employer's genuine involvement is essential. In its July 2024 Agent Update, HMRC flagged arrangements where the employer's contribution was only nominal as falling short of the requirements. A properly run scheme therefore involves a real employer contribution and genuine participation in how the nursery funding is directed, not a token payment.

This is why the choice of provider matters. A careful provider documents the employer's role and the funding arrangement clearly, and describes itself as built in accordance with HMRC's published guidance rather than claiming to be HMRC approved, which is not something HMRC grants to individual commercial schemes.

How to set up the Workplace Nursery Scheme

For an employee, the first step is to check whether your employer already offers the benefit, and if not, to ask them to consider it. For an employer, setting it up means partnering with registered nurseries, putting the contracts and contribution arrangements in place, and handling the payroll changes and compliance documentation. A specialist provider manages this end to end, so neither the employer nor the nursery has to build it from scratch.

Kinsail is the only established workplace nursery provider that does not charge parents a fee, so every pound of the saving stays with the family. The platform handles the contracts, the payroll setup, the nursery partnership and the compliance documentation, and uses its OFSTED Analysis Tools to help direct the employer's nursery contribution toward improving educational outcomes for the children at the setting.

Frequently asked questions

Is the Workplace Nursery Scheme the same as childcare vouchers?

No. Childcare vouchers closed to new entrants in 2018. The Workplace Nursery Scheme is a separate benefit under Section 318 ITEPA 2003, with no cap on its value.

Can I use the Workplace Nursery Scheme and Tax-Free Childcare together?

No. You cannot use both for the same child at the same time. You can compare which is worth more for your circumstances and choose accordingly.

Is there an income limit?

No. Unlike Tax-Free Childcare and the funded hours, there is no one hundred thousand pound income cap, which is why it is especially valuable to higher earners.

Does my nursery have to be on my employer's premises?

No. A registered nursery can take part through a partnership arrangement with your employer; it does not need to be on-site or employer-owned.

What happens if I change jobs?

The salary sacrifice arrangement is tied to your employment, so it typically ends if you leave. Check the specific terms with your employer or provider.

This guide is general information, not personal tax or financial advice. Your position depends on your individual circumstances; check with your employer's payroll or benefits team before making changes to your pay arrangements.