HM Revenue and Customs (HMRC) has turned its attention to workplace nursery benefit schemes, which have provided a significant financial relief to numerous employees. These schemes enable employees to pay nursery fees from their pre-tax salary, resulting in potential savings of up to £10,000 annually on income tax and national insurance. Originally introduced in 1990, the schemes aimed to encourage employers to offer nursery places for staff. However, recent scrutiny by HMRC suggests that some schemes might not meet current tax rules, potentially leading to unexpected tax liabilities for employees.
Employers can establish these schemes by contributing an additional £100 per month per child or employee to the nursery, beyond the regular fees. This supplementary payment supports the nursery's operational costs and upkeep. Employee benefits firms such as Enjoy Benefits and gogeta facilitate these schemes for employers. Enjoy Benefits claims that parents in London could save over £10,000 annually through these schemes. For instance, a higher-rate taxpayer with monthly nursery fees of £800 could save £3,336 a year, while those paying £2,000 a month might save £8,340 annually.
“In reality there is little for the employer to do,” said Enjoy Benefits. “We then take care of the administration.”
Despite the apparent simplicity and substantial savings, HMRC believes some schemes are non-compliant with its stringent requirements. This investigation aims to ensure adherence to tax regulations. Employees benefiting from these schemes have reported significant monthly savings, with one individual claiming to save £500 monthly—a crucial relief for their family.
“As a family we’ve saved £1,400 in six months, which has been a huge help,” shared a magazine editor. “To think we’ll be almost £3,000 better off at the end of 12 months is staggering. My daughter’s nursery has used the money it received to improve its garden area. It’s a winning situation all round.”
However, HMRC warns that if a scheme falters under scrutiny, employees might face unforeseen tax bills due to the unwinding of non-compliant benefits.
“If a scheme does not meet the criteria, the employee – to use the official terminology – ‘remains chargeable on their original gross pay’,” HMRC stated.
The schemes have gained popularity among hundreds of employers, with Enjoy Benefits leading the sector. Both Enjoy Benefits and gogeta emphasize the ease of setting up these schemes. Gogeta describes them as “incredibly simple” for employers to implement and manage.
“We welcome this further guidance from HMRC which we have been seeking for some time and are updating our scheme accordingly to maintain the highest of compliance standards for our clients,” said gogeta.
“It saves me about £500 a month … and the nursery spent their £1,200 on new bikes for the kids. A real win-win,” an employee expressed.
The potential savings have driven many families to enroll through their workplaces, as evidenced by another employee who saved approximately £850 per month through their wife’s employer.
“We’ve just signed up for this through my wife’s work. The saving for us is around £850pm [per month] – a lot!” an employee noted.
Despite HMRC's scrutiny, some operators have advertised their services with alleged HMRC approval, although not all meet the necessary partnership requirements.
“If the conditions around the partnership requirements are not met, the exemption will not apply,” warned HMRC.