What is the workplace nursery benefit?
It is an employer-provided benefit that lets a working parent take a registered nursery place through salary sacrifice. Because salary is reduced before tax and National Insurance, the same place costs the family considerably less. This page explains how it works, who qualifies, what it asks of an employer, and where it sits in the legislation.
A nursery place, not a discount
Under the arrangement your employer provides you with a place at a registered nursery. You agree in advance to reduce your salary by an amount that reflects the cost of that place, and your employer meets the cost of the provision. The reduction is agreed before you become entitled to the pay, which is what makes it a salary sacrifice rather than something taken out of wages you have already earned.
That distinction matters more than it sounds. The tax treatment attaches to the provision of a place by an employer, not to a discount on something you buy yourself. It is the reason the arrangement involves your employer in the nursery rather than simply routing money through payroll.
Your employer also makes a contribution towards agreed improvements at the setting, which is a real commitment on their part and one of the conditions the arrangement depends on.
Why it costs less
Salary reduced before tax and National Insurance means you no longer pay either on that portion of your pay. What you save is your own combined marginal rate, so the figure depends on your tax band and what you pay for childcare. Broadly:
Basic rate taxpayers
Higher rate taxpayers
Additional rate taxpayers
Those are the outer edges of each band rather than a promise. Your own figure depends on your salary, your tax band and the amount you sacrifice, and the only sensible way to see it is to put your real numbers in. The savings calculator takes about a minute.
There is no cap on the amount that can be sacrificed, which is the main structural difference from Tax-Free Childcare. Sacrifice applies to future costs only, never retrospectively.
Who can use it
Four things generally need to be true. Your child lives with you or you have parental responsibility for them. The setting is registered and is not wholly or mainly a private dwelling. You are paid through PAYE. And your pay after the reduction stays at or above the National Minimum Wage.
That last one is worth stating precisely, because it is widely misunderstood. The National Minimum Wage is an hourly rate, so the test is what you are paid for each hour you actually work. On current rates, full-time pay after sacrifice needs to be at least £26,437 a year on a 40-hour week, or £24,785 a year on a 37.5-hour week. Both are the same hourly floor expressed differently. Part-time employees earn less than either annual figure and are perfectly compliant, because the test was never an annual one. Rates change each April.
There is one condition that belongs to your employer rather than to you: the benefit has to be open to their employees generally, or generally to those at a location. An employer cannot offer it to a few people.
The eligibility checker walks through this in under a minute.
What it costs an employer
Kinsail charges a management fee of 15% of the salary sacrifice amount, paid by the employer. VAT applies to Kinsail fees from 1 October 2026.
Separately, 8.7% of the amount sacrificed passes to the nursery as the employer's contribution, directed at improvement priorities agreed with the setting. That contribution is not an administrative formality. The arrangement rests on the employer genuinely helping to finance the provision, so the money is tied to agreed improvements and released against receipts rather than going into general running costs.
Employees pay Kinsail nothing. Kinsail is the only established provider that does not charge employees a fee.
How it compares to the alternatives
Tax-Free Childcare. The two are mutually exclusive, so you hold one or the other. Tax-Free Childcare tops up what you pay, within an annual cap. The workplace nursery benefit has no cap, which is why it tends to suit families with substantial nursery costs, though the right answer depends on your circumstances.
Childcare vouchers. Closed to new joiners in October 2018. If you are already in a voucher scheme you can stay, but nobody new can join. The workplace nursery benefit sits under different legislation and remains open.
Funded hours. Unaffected. Government funded hours continue as normal, and the benefit applies to what you pay beyond them.
There is a fuller side-by-side on the childcare schemes comparison.
What an employer actually takes on
This is the part most explanations skip, and it is the part that makes the arrangement work. The employer is not simply funding a benefit. It takes part in the nursery provision, through a representative, and that participation has to be real.
In practice that means a structured meeting between the employer's representative and the nursery covering staffing and performance, the extent and conditions of care, allocation of places, safeguarding and curriculum, alongside how the contribution is spent. Decisions are documented, spend is evidenced against receipts, and the record is retained.
Kinsail's OFSTED Analysis Tools read the setting's published inspection report and turn it into evidence-based investment priorities, so the conversation starts from what would genuinely improve outcomes for the children rather than from a blank page.
If a provider tells you the meetings can be skipped or replaced with a form, they are describing a weaker arrangement than this one.
Where it comes from
The exemption sits at Section 318 of the Income Tax (Earnings and Pensions) Act 2003. HMRC's published guidance on it runs from EIM22004 to EIM22007, with EIM21930 covering the wider context.
The conditions cover the child's relationship to the employee, the registration and nature of the setting, the employer's participation in financing and managing the provision, and the benefit being open to employees generally. Kinsail is built in accordance with HMRC's published guidance under Section 318 ITEPA 2003.
One caution worth carrying into any conversation with a provider: HMRC does not approve arrangements in advance. Anyone claiming HMRC has approved, endorsed or signed off their model is telling you something that cannot be true.
Common questions
Is the workplace nursery benefit the same as childcare vouchers?
No. Childcare vouchers closed to new joiners in October 2018. The workplace nursery benefit sits under a different part of the legislation, Section 318 ITEPA 2003, and is open to any employer that wants to offer it.
Can I use it alongside Tax-Free Childcare?
No. Tax-Free Childcare and the workplace nursery benefit are mutually exclusive, so you need to choose one. If you currently hold a Tax-Free Childcare account you would close it before starting. For most families paying substantial nursery costs the workplace nursery benefit is worth more, because Tax-Free Childcare is capped and this is not, but it depends on your circumstances.
Does it affect the funded hours?
No. Government funded hours are separate and continue as normal. The benefit applies to what you pay on top of them.
Is there a limit on how much I can sacrifice?
There is no cap on the amount that can be sacrificed. The practical limit is that your pay after the reduction must stay at or above the National Minimum Wage for the hours you actually work.
Can I change my mind?
The reduction is agreed for a fixed 12-month term. Early exit is limited to lifestyle events, or an exception your employer agrees case by case. That fixed commitment is part of what makes the arrangement effective, so it is not something to enter into casually.
Does my child have to move nursery?
No. Any registered setting can join the Kinsail network, and most are glad to, so in almost every case you keep the nursery your child already attends.
What does it cost me?
Kinsail charges employees no fee. Kinsail is the only established provider that does not charge employees a fee.
Is this an HMRC approved arrangement?
HMRC does not approve arrangements in advance, and no provider can tell you otherwise. Kinsail is built in accordance with HMRC's published guidance under Section 318 ITEPA 2003.
See what it would be worth to you.
A minute with the calculator, no sign-up. If your employer does not offer it yet, we can approach them for you.