Working parents Emily Summerson and her husband Reginald Port save £22,966 a year on childcare fees in Swanland, East Yorkshire, by using a workplace nursery salary sacrifice scheme.
The couple faced nursery bills of £3,600 a month, or £43,200 annually, to care for their three young children. By establishing the scheme through third-party company Kinsail, they slashed their monthly bill by 47 per cent to £1,913.
Summerson, 32, works full time as chief executive of flooring manufacturer Vuba Chemical Innovations, while Port, 35, is managing director of incineration firm Energy Works. Their older children, Reginald, three, and Cordelia, two, attend nursery four days a week, while ten-month-old Priscilla attends for three days, with extended family members helping out on the remaining days.
"It’s a no-brainer for us," Summerson said. "It’s made a huge difference because the money it saves can be used towards holidays or things to do with the family. We definitely feel the financial benefit every month."
Workplace nursery benefit schemes allow employees to pay nursery fees directly out of their salary before income tax and National Insurance are deducted. Because Summerson is an additional rate taxpayer, she saves by no longer paying 45 per cent tax and National Insurance on that portion of her income.
The salary sacrifice scheme functions by giving employees a lower gross salary in exchange for a non-cash benefit, where the employer pays the nursery fees directly to the provider. Many employers use third-party companies that specialise in setting up these schemes and getting nurseries on board.
To qualify for the tax break, a child must attend an Ofsted-registered nursery that participates in the scheme. Her Majesty's Revenue and Customs requires employers to take an active part in financing and managing the nursery to ensure compliance with tax rules.
As part of these requirements, employers must pay an extra contribution of at least £100 a month towards fixed nursery costs. This money must be spent directly on resources or equipment, such as staff training or facility improvements.
How Employer Nursery Partnerships Work
The scheme was originally introduced in 1990 to encourage employers to run nurseries or team up with other businesses to jointly finance childcare places for staff, either on-site or off-site.
Sarah Coles, head of personal finance at AJ Bell, said: "These schemes use legislation that means that where nurseries work in partnership with the employer to provide care to staff, it isn’t taxed as income."
Coles added: "You need to be confident the scheme is set up correctly, and that the employer really is involved in the running of the nursery in some way." The tax office has previously issued warnings and opened enquiries into companies using third-party facilitators.
To meet the strict tax requirements, parents who sign up are often required to meet with nursery managers to discuss how funding should be spent, share their wishes in writing, or attend meetings as part of a committee.
Summerson said the scheme was straightforward to implement. "Initially I did it through my previous employer as it was one of the benefits they offered but I’ve just introduced it at Vuba via a third-party firm called Kinsail," she said.
"Parents have an initial kick-off meeting with the nursery to discuss any issues within the nursery and how they are going to use the funds but it’s not overly complicated," Summerson added. She asked her nursery if there was safety equipment they wanted to purchase, agreeing loosely on how the money would be spent before the nursery invoiced her company.
Childcare Savings Across Income Brackets
There is no cap on how much parents can save using a workplace nursery salary sacrifice scheme. Total savings depend on the size of the nursery bill and the parent's income bracket, with higher earners gaining the most.
A basic rate taxpayer spending £1,000 a month (£12,000 a year) on nursery fees saves £3,360 annually under the scheme by saving 20 per cent in tax. A higher-rate taxpayer with the exact same nursery costs saves £5,040 a year because they save 40 per cent in tax.
These savings arrive as childcare costs across the UK remain high. According to the 2026 annual survey from children's charity Coram, the average cost of a full-time nursery place for a child under two is £7,738 a year (£645 a month) for parents receiving 30 funded hours. In London and the South East, annual prices can exceed £20,000 even with government funding.
Working parents in the UK can access up to 30 hours of free childcare for children aged nine months to four years over 38 weeks. Parents can also use Tax-Free Childcare, which provides up to £2,000 a year by topping up £2 for every £8 paid by parents.
However, both of those government benefits are completely lost once one parent earns more than £100,000. Summerson, who earns above that threshold, said: "The Government advertises free support for working families and when you look into it there’s hardly any benefit to us at all. We felt a bit let down and then we found this scheme."
Financial Risks and Contract Checks
Before signing up, experts advise parents to check that taking a lower gross salary will not cause financial drawbacks in other areas. For example, a lower gross salary can reduce mortgage affordability by lowering official take-home earnings.
In addition, pension contributions could be reduced if an employer calculates retirement payments based on post-sacrifice income rather than pre-sacrifice earnings. Parents are advised to verify their employer's specific policy beforehand.
Coles warned: "Bear in mind that if you use salary sacrifice, you’re effectively accepting a pay cut in exchange for something else, so it will affect some of the things based on your earnings, including statutory maternity pay and statutory redundancy pay."
Coles added: "You should also check your contract to see how your employer calculates life cover, because while some will base payments on your salary before the sacrifice, they can use the lower figure."
