Can I Claim Childcare and Nursery Fees as a Business Expense?
No - childcare is a personal expense. However, there are tax-efficient childcare voucher/account schemes.
What HMRC Says
Childcare is considered a personal expense and cannot be claimed as a business cost. However, employer-supported childcare schemes offer tax advantages.
When You Can Claim
- Workplace nursery provided by employer (rare)
- Tax-Free Childcare account contributions
- Childcare vouchers (closed scheme for those already enrolled)
When You Cannot Claim
- Nursery fees paid directly
- Childminder costs
- After-school clubs
- Holiday childcare
Understanding Childcare and Nursery Fees Expenses
Childcare is one of the most asked-about expenses for company directors, and the answer is consistently disappointing: your company cannot pay for your childcare as a tax-deductible business expense. HMRC considers childcare a personal living cost, regardless of the fact that you need childcare in order to work. However, there are legitimate tax-efficient alternatives that can significantly reduce your effective childcare costs.
The primary option for most directors is Tax-Free Childcare. This is a government scheme where for every £8 you pay into your Tax-Free Childcare account, the government adds £2, up to a maximum of £2,000 per child per year (or £4,000 for disabled children). To qualify, both parents must be working and each earning at least £8,670 per year (equivalent to 16 hours at National Living Wage) but not more than £100,000 each. Crucially, you cannot use Tax-Free Childcare if you receive childcare vouchers from your employer.
Childcare vouchers were the previous scheme and closed to new applicants in October 2018. If you were already receiving childcare vouchers before that date, you can continue. Under the voucher scheme, you sacrifice salary for vouchers worth up to £55 per week (£243 per month) and save on income tax and National Insurance on that amount. For a 40% taxpayer, this saves around £930 per year. However, you cannot benefit from both schemes simultaneously.
Workplace nurseries are the most tax-efficient option but are extremely rare for small companies. If your company provides a workplace nursery that is available to all employees, the entire cost is tax-free for the employees and tax-deductible for the company. The nursery must be on premises the employer manages or provides. This is impractical for most limited company directors but worth noting for larger companies.
One approach some directors consider is paying a higher salary to cover childcare costs. While the salary is tax-deductible for the company, you will pay income tax and National Insurance on it, making this the least efficient method. Dividends to cover childcare are more tax-efficient than salary in most cases, but there is no specific childcare relief on dividend income.
Real-World Examples
Using Tax-Free Childcare
Anna, a company director earning £60,000, pays £10,000 per year in nursery fees for her daughter. She opens a Tax-Free Childcare account and deposits £8,000. The government tops this up with £2,000 (the maximum per child). She saves £2,000 on childcare costs, effectively getting a 20% discount.
Continuing childcare vouchers
Rob joined the childcare voucher scheme in 2017 before it closed. He sacrifices £243 per month from his salary for vouchers. As a 40% taxpayer, he saves approximately £933 per year in tax and NI. He has compared this with Tax-Free Childcare and the vouchers are better for his situation.
Director trying to claim nursery through the company
Maria asks her accountant if her company can pay the £1,500 monthly nursery fee directly. Her accountant explains this would be treated as a Benefit in Kind, with Maria paying income tax on the full amount and the company paying Class 1A NI. Instead, they set up Tax-Free Childcare for the government top-up.
Common Mistakes to Avoid
- Paying nursery fees directly from the company account and claiming them as a business expense - this creates a taxable Benefit in Kind and NI liability.
- Not realising that Tax-Free Childcare is available to company directors, not just employees - directors who pay themselves at least £8,670 per year qualify.
- Using both childcare vouchers and Tax-Free Childcare simultaneously, which is not permitted - you must choose one scheme.
- Failing to check whether Tax-Free Childcare or the old voucher scheme gives better value for your specific income level and childcare costs.
Frequently Asked Questions
Can my limited company pay for my childcare?
Not as a tax-free expense. If your company pays nursery fees, it is a Benefit in Kind. You would pay income tax on the value, and the company would pay Class 1A National Insurance. Use Tax-Free Childcare instead for up to £2,000 per child per year in government top-ups.
Am I eligible for Tax-Free Childcare as a company director?
Yes, provided you pay yourself a salary of at least £8,670 per year (the minimum earnings threshold) and your income is under £100,000. Both parents must meet these criteria. Dividend income alone does not count towards the minimum, so ensure your salary meets the threshold.
Should I switch from childcare vouchers to Tax-Free Childcare?
It depends on your tax rate and childcare costs. Vouchers save up to £933/year for a 40% taxpayer. Tax-Free Childcare provides up to £2,000 per child per year. For most families paying over £5,000/year in childcare, Tax-Free Childcare is better, especially with multiple children.
Can I claim childcare as a business expense if I need it to attend client meetings?
No. HMRC does not allow childcare as a business expense regardless of the reason you need it. The need for childcare arises from your personal circumstances, not from the nature of your work. The same applies to pet care, elderly care, or any other personal care arrangements.
What about nanny costs or au pairs - are they any different?
No. All forms of childcare are treated the same way by HMRC: they are personal expenses. Nannies, childminders, au pairs, nurseries, and after-school clubs are all personal costs that cannot be claimed through your company. Tax-Free Childcare applies to registered childcare providers only.
Source: HMRC Employment Income Manual EIM16053 - Tax-Free Childcare, and EIM16050 - Employer-supported childcare
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