Warning issued over unexpected tax bills as HMRC cracks down on workplace childcare schemes

Parents are being warned they could face unexpected tax bills as HMRC tightens its grip on the misuse of workplace childcare schemes. HMRC recently highlighted concerns about workplace nursery benefit schemes, pointing out that some businesses can exploit these arrangements for tax benefits.

The scheme allows employees to pay nursery tax out of their gross salary, effectively reducing their taxable income and National Insurance contributions. Tax relief for workplace nurseries was introduced back in 1990 to encourage employers to provide nursery places, either by setting up a nursery at their premises or partnering with another company to fund and run one, the Mirror reports.

Usually this benefit is provided through a salary sacrifice scheme, where the sacrificed part of the salary would be taxable, but workplace nurseries are an exception. However, HMRC has identified that while most workplace nursery partnership schemes are above board, there are those that do not follow the rules.

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HMRC said: “We have been alerted that a small number of scheme operators are advertising their services with HMRC approval where the partnership requirements are not met. HMRC will never give approval to a company to advertise that a scheme is tax compliant. around the partnership requirements are not met, then the exemption will not apply.”

Under these regulations, HMRC insists that employers make a “real and substantial commitment” to funding the nursery, including accepting the financial risk involved in running it. It is expected that employers “must, in a real sense, play a role” in the management of the nursery, which may involve a significant role in appointing and monitoring the performance of nursery staff.

HMRC said: “This requires more than purchasing places at a commercial nursery and contributing to fixed costs. HMRC does not consider only paying fixed costs of ‘£x’ (such as £100 tech per month per child of employee) to a business person. running an existing nursery meets the requirement Employers must accept the financial risk associated with running a childcare facility which is likely to take the form of a contribution to the overall costs and is such that there is also shared responsibility for any losses.”

In cases where the scheme does not meet these criteria, the employee “remains paid the original gross salary”. Susan Ball, an employer tax partner at RSM UK, suggested that employees could “end up with an unexpected tax bill” if the scheme is to be canceled or discontinued.

She said: “If a nursery scheme should have been taxable and the employer has not declared it as a benefit in kind on their P11D form or through their payroll, HMRC can go back up to six years to check whether the tax break was claimed when there shouldn’t have been interest and penalties accruing several years ago, so the impact of this could be significant for many. their employer is not liable.”

Ms Ball also said employers should reassess their nursery schemes to ensure compliance with the rules. She said: “Employers offering such schemes should act now to review their position. Those who have incorrectly claimed tax relief should make a voluntary disclosure to HMRC as soon as possible.”

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