Provision of childcare
If you are a parent and you go out to work, your employer may provide you with some childcare.
If you are an employer you may want to provide some facilities for your employees' children.
Parents
Payments for childcare cannot be deducted from your earned income. If your employer provides a nursery play scheme you may be taxed on the value of the place. Your employer will be able to let you know if this is the case.
If your employer does not provide a workplace nursery but helps you with your childcare costs, then you will pay tax on the cash value if you get:
- a cash allowance, or
- a voucher which you can use to get childcare, or
- the fees paid for a nursery, play scheme, childminder or nanny that you have engaged to look after your child.
If you employee a nanny to look after your children you should inform your local tax office. They will tell you what you need to do about deducting tax and National Insurance from the payments you make to the nanny.
Employers
Employers can claim tax relief for the day-to-day costs of providing or subsidising childcare. Also, the cost of equipment for a nursery or play scheme may qualify for capital allowances. Some employers may also qualify for tax relief for the capital costs of providing nursery or play scheme premises.
Day-to-day costs include:
- giving an employee a cash allowance for childcare
- paying the fees of a nursery, childminder or nanny on behalf of an employee
- the running costs of a workplace nursery or play scheme for employees' children - for example rent, rates, heating and lighting, staff wages, food, and play equipment with a short life.
These costs are all deductible when working out your profits for tax purposes.
The nursery or play scheme premises cannot be used as a private dwelling. There is no tax exemption for childcare that is mainly educational (although a small element will not disqualify the nursery).
National Insurance contributions may be payable on payments made by an employer to the employee where:
- actual cost is reimbursed, or
- a cash allowance is given to pay for the childcare.
If vouchers are given to the employee and they have a face value to pay for childcare these can be ignored for National Insurance purposes provided they cannot be exchanged for cash. If they can be exchanged, National Insurance contributions are due on the cash value.
This page was last reviewed on 03 April 2006. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
