Providing a workplace nursery can help you attract and retain staff

Providing a nursery can be a powerful way to support your team, especially when childcare costs remain a real pressure for many working parents across the UK.

For employees with young children, nursery fees can take a large share of monthly income. Even with funded childcare support available for eligible families in England, many parents still face costs for extra hours, younger children, holiday periods, meals and wraparound care.

That pressure can affect work decisions. Some parents reduce hours, pause career progression or leave their job because childcare is too expensive or difficult to arrange.

For your business, this can lead to recruitment gaps, lost experience and higher staff turnover. A qualifying workplace nursery can help you offer practical support while strengthening your overall benefits package.

It can also be tax efficient, but only if it is set up correctly. HMRC’s conditions are strict, so you should not assume that any nursery arrangement will automatically qualify.

At FHP Accounting, we help businesses understand the tax, payroll and accounting impact of staff benefits, including workplace nursery arrangements.

Why childcare support matters for employers

Childcare is not just a personal issue for employees. It can become a business issue too.

If an experienced employee cannot return to work because childcare costs are too high, your business may lose valuable knowledge. You may then need to spend money on recruitment, training and temporary cover.

For small and growing businesses, this can be especially disruptive. Losing 1 key member of staff can affect service quality, client relationships and team morale.

Offering childcare support can help you show that you understand the pressures working parents face. It can also make your business more attractive when candidates compare roles.

A workplace nursery will not be suitable for every employer. However, where it is practical and properly structured, it can support retention and help parents stay in work.

What is a workplace nursery?

A workplace nursery is childcare provided by an employer for employees’ children.

It may be based at your workplace. It may also be based at other premises, as long as those premises are managed and financed by the employer and are not a private residence.

The nursery must be properly registered or approved. It must provide childcare for employees’ children, or children for whom employees have parental responsibility.

It should also be available generally to employees. If the scheme is only offered to directors, senior staff or a selected group, the tax exemption may not apply.

This is an important point. A workplace nursery is not the same as simply paying an employee’s nursery bill. It is also not usually enough to buy places from a commercial nursery without real involvement in the arrangement.

The tax treatment can be valuable

Where a workplace nursery meets the qualifying conditions, the benefit can be exempt from income tax and National Insurance.

That can make it valuable for employees. It may also help your business offer support without simply increasing salary.

However, the exemption is narrow. HMRC expects the employer to have real involvement in the financing and management of the childcare provision.

This means your business should be able to show a meaningful financial commitment. It should also be involved in management decisions, not just approving decisions made elsewhere.

If the conditions are not met, the nursery benefit may become taxable as a benefit in kind. That can create income tax and National Insurance consequences.

This is why workplace nursery planning should be reviewed alongside your payroll services, staff benefit reporting and wider tax position.

What HMRC looks for

HMRC will usually look at the substance of the arrangement, not just the name given to it.

You should be able to show that your business has proper responsibility for the nursery arrangement.

Key areas include:

• Availability to employees.
• Registered or approved childcare provision.
• Real employer involvement in management.
• Real employer responsibility for financing.
• Clear records of costs and agreements.
• Proper payroll and benefit treatment.
• Correct accounting treatment.

If your business is only paying a fixed amount per employee or child, that may not be enough. The arrangement needs to show genuine responsibility and risk.

This is where advice can make a big difference. Before agreeing to a scheme, you should review the structure carefully and keep supporting documents.

How a nursery can help staff retention

A workplace nursery can help employees return to work sooner, work more consistent hours and stay with your business for longer.

This can be especially useful where your team includes skilled staff who are difficult to replace. It can also support parents who may otherwise feel forced to reduce their working hours.

There is also a wider cultural benefit. When employees feel supported, they are more likely to feel loyal to the business.

This does not mean every employee will use the nursery. However, the benefit can still send a strong message about how your business treats its people.

If you are reviewing your overall employment costs, it may help to look at workplace nursery support alongside company tax returns, staff salaries, pension contributions and other benefits.

Planning the cost before you commit

Before setting up a workplace nursery, you need to understand the full cost.

You should look beyond the headline nursery fee. There may be setup costs, management costs, insurance costs, administration time and professional fees.

You should also think about how many employees are likely to use the scheme. If take-up is low, the benefit may not justify the cost.

Good financial records are important. Your bookkeeping should clearly show nursery-related payments, supplier invoices and any employee contributions.

If you use cloud software, regular reporting can help you keep control of the numbers. FHP Accounting can support you with Xero bookkeeping so your records stay up to date.

For larger businesses, childcare support may also form part of wider forecasting. An outsourced finance department can help you understand the real cost before you make a long-term commitment.

Common mistakes to avoid

Workplace nursery arrangements can be useful, but mistakes can be expensive.

Some employers assume that any childcare support is tax free. That is not correct. The exemption only applies when the qualifying conditions are met.

Others rely on a third-party scheme without checking whether the business has enough management and financial responsibility.

You should also avoid weak documentation. If HMRC asks questions, you need evidence to support the treatment used.

Common issues include:

• Offering the scheme only to selected staff.
• Paying nursery fees without a qualifying structure.
• Making only a token financial contribution.
• Having little or no management involvement.
• Failing to review payroll reporting.
• Keeping poor records of the arrangement.
• Assuming VAT or tax treatment without advice.

If your business is VAT registered, you should take advice before making assumptions about the VAT position. FHP Accounting can help with VAT return services and related record checks.

At year end, nursery costs and staff benefit arrangements should also be reflected correctly in your annual statutory accounts.

When a workplace nursery may not be practical

A workplace nursery is not right for every business.

If you only have a small team, there may not be enough demand. If your employees work remotely or across several locations, it may be difficult to offer fair access.

You may also find that the cost, management responsibility and compliance requirements are too high.

In that case, you can still look at other ways to support working parents. This may include flexible working, clear return-to-work policies, salary sacrifice arrangements where suitable, or wider family-friendly benefits.

If your business is still young, it may be better to build strong financial systems before taking on complex staff benefit arrangements. FHP Accounting supports new companies through its accountants for start-ups service.

Directors should also consider their own tax position carefully, especially where family members work in the business. You may need support with personal tax returns if benefits, income or director arrangements need to be reviewed.

Getting the structure right

If you are considering a workplace nursery, start with the purpose.

Do you want to improve retention? Support parents returning to work? Strengthen recruitment? Reduce absence? Build a better benefits package?

Once you know the reason, you can assess whether the arrangement is practical and affordable.

You should involve the right people early. That may include directors, HR, payroll, finance and your accountant.

You should also keep the arrangement clear and fair. Employees should understand who can use the nursery, how it works and whether any costs apply.

If your company structure needs updating as part of wider planning, FHP Accounting can also help with company secretarial services.

Speak to FHP Accounting about workplace nursery planning

A workplace nursery can be a useful way to support your team, but it needs careful planning.

The tax exemption can be valuable, but only where HMRC’s conditions are met. Your business also needs to understand the ongoing cost, payroll treatment and accounting impact.

FHP Accounting can help you review the numbers, check the structure and decide whether a workplace nursery is the right option for your business.

For clear, practical support, contact FHP Accounting today and speak to our friendly team about workplace nursery planning.

Kellee Quigley

I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.