Can my limited company pay my nursery fees directly — and is salary sacrifice or Tax-Free Childcare the better route?

Hi Luna,

Taking your questions in order:

1. Direct company payment: the company can pay the nursery, but it is not a tax-free benefit. The fees would be a taxable benefit in kind on you. The company reports the cost on form P11D and pays Class 1A employer NICs on it, and you would pay income tax on the benefit through your Self Assessment. The company does get corporation tax relief on the cost, but the personal tax charge on you means there is no overall saving compared with paying the nursery out of your own taxed income.

2. Salary sacrifice: childcare vouchers and directly contracted childcare closed to new entrants, so salary sacrifice for childcare is not available to someone starting fresh. It only continues for existing scheme members, which does not include you.

3. Tax-Free Childcare: for every £8 you pay into a childcare account, the government tops it up by £2 — up to £500 every 3 months (£2,000 a year per child; £4,000 for a disabled child). One watch-out for a director taking salary plus dividends: each parent must expect to earn at least £2,643.68 before tax over the next 3 months (if aged 21 or over), and dividends do not count toward that minimum — so keep enough PAYE salary to clear the threshold. Also, neither parent's adjusted net income can be over £100,000, and you cannot claim it alongside Universal Credit or childcare vouchers.

At £1,100 a month you would get the full top-up, since you are well above the £500-a-quarter cap. It will not cover the whole bill, but it is the most straightforward tax-efficient route. Run your details through the eligibility checker on GOV.UK before applying.

Hope that helps.

Amelia