Workplace nursery or Tax-Free Childcare — which should I use?

What is the official difference between a workplace nursery and Tax-Free Childcare?

Tax-Free Childcare is a childcare account you open with HMRC. GOV.UK: for every £8 you pay in, the government adds £2. You then pay an approved provider from the account. You reconfirm every 3 months. You cannot hold it at the same time as Universal Credit or employer childcare vouchers.

A workplace nursery is employer-provided childcare. If the exemption in section 318 of ITEPA 2003 applies, HMRC does not treat that place as a taxable benefit in the way the benefits code otherwise would. HMRC’s Employment Income Manual (EIM21900) says section 318 “mainly applies to workplace nurseries in some narrow circumstances.” That is a tax rule on the employer’s provision — not a top-up paid into your bank.

Closed employer childcare-voucher schemes (section 318A) are a third thing. GOV.UK: you can only get childcare vouchers if you have already joined a scheme. HMRC: those voucher exemptions closed to new members from 4 October 2018 (EIM21900). Do not treat a voucher salary-sacrifice leftover as a workplace nursery.

What tests does HMRC apply to a workplace nursery?

HMRC’s live tests for commercially marketed schemes are in EIM21970. There is no statutory bar on an employer entering a partnership with a commercial nursery. The employer must still engage so that the employer is “wholly or partly responsible for the financing and managing the provision of the care.”

How does Tax-Free Childcare work on the published rates?

GOV.UK’s worked example: a £250 bill means you pay in £200 and the government adds £50. The eligibility page (checked 10 September 2026) also sets the working and income gates. Each parent must usually expect, over the next 3 months, to earn at least £2,643.68 before tax if aged 21 or over (GOV.UK also states the 18–20 and under-18 / apprentice floors). Adjusted net income over £100,000 for you or your partner blocks the account. A new self-employed business under 12 months old is exempt from the earnings floor on that page.

Those figures match `contracts/tax-year-2026-27.json` (annual floor example £10,574.72 for someone 21 or over). Reconfirm every 3 months or GOV.UK says Tax-Free Childcare stops. This is not a workplace-nursery calculation and it is not a Universal Credit comparison.

Why do commercially marketed nursery schemes fail HMRC’s test?

EIM21970 describes a pattern HMRC sees in schemes that fail. Typical features, in HMRC’s words:

• the employee enters a salary sacrifice equal to the nursery place
• the employer pays for a place at a nursery run by the promoter or at an independent nursery
• the employer also pays the nursery an extra sum
• the employer appoints the promoter as their “agent” at a management committee, “though in practice the employer has no real say at all in the way the nursery is run”

HMRC: the package is offered to the employer; once people sign up, the promoter makes the arrangements other than the salary sacrifice. If the employer is not genuinely financing and managing the care, the section 318 exemption is the thing in dispute — EIM21971 onwards is HMRC’s internal follow-up, not a parent claim form. A brochure that says “workplace nursery” is not the statutory test.

How do I check which route applies to my employer?

1. 1
   Ask whether there is a nursery the employer actually runs or jointly manages On-site rooms, or a partnership where the employer is on the hook for financing and management (EIM21970 / EIM22006), are the s318 shape. A portal that books any high-street nursery through a promoter is the shape HMRC flags.
2. 2
   Ask who sits on the management arrangements EIM21970 treats an “agent at meetings with no real say” as a warning sign. Ask for the employer’s own description, in writing, of how it manages the provision.
3. 3
   If there is no qualifying workplace place, open the TFC tests on GOV.UK Confirm the provider is already signed up. Apply at the GOV.UK Tax-Free Childcare apply page. Do not cancel Universal Credit until that decision arrives if you are comparing those two — that comparison is a different GOV.UK process and is not this page.
4. 4
   If you are still in a closed voucher scheme, read that scheme’s rules separately GOV.UK: vouchers are only for people who have already joined. That is not TFC and it is not a new s318 nursery.
5. 5
   Do not use a marketed “saving” figure as the decision EIM21970 has no official annual-saving calculator. TFC’s official numbers are the £8 / £2 top-up and the quarterly cap. Anything else is marketing.

In shortUse Tax-Free Childcare when you need an HMRC account to pay a signed-up provider and you pass the live GOV.UK gates. Treat a workplace nursery as an s318 exemption only if the employer really finances and manages the care. Commercially marketed salary-sacrifice “nursery schemes” are the pattern HMRC wrote EIM21970 to catch.