The old rules: a brief summary

Until 5 April 2005 the tax rules applying to employer-supported childcare were pretty restrictive. The general rule was that where an employer helped employees financially with childcare costs there was a taxable benefit and national insurance (NI) charge based on the cost to the employer, with very limited exceptions. The exceptions are detailed below to help set the scene and allow you to understand more easily what has changed.

Workplace nurseries

Since 1990, there has been no taxable benefit or NI charge where either:

childcare is provided on the employer’s premises or
on premises where the care is provided jointly with others and where the employer is wholly or partly responsible for managing and financing the care facilities.

Comment
These stringent requirements ruled out the provision of tax-free childcare by many smaller businesses. The new rules (explained later in this bulletin) aim to allow greater flexibility and make employer-supported childcare a realistic option for many more employers.

National insurance

Although the tax-free benefit was limited to workplace nurseries, the NI exemption (for both employers and employees) was wider and also included:

employers contracting for places in commercial nurseries or for the services of a registered childminder and
childcare vouchers.

Comments

The NI exemption did not extend to the reimbursement of costs incurred by employees.
The exemptions did not have any financial limits.
Clearly the tax and NI exemptions were out of step.