Section 318 ITEPA 2003
Section 318 ITEPA 2003 — the legislation behind workplace nursery savings
The law that allows employers to support nursery costs tax-free. Here's what it means, how it works, and how Halo is built around it.
The legislation
What is Section 318 ITEPA 2003?
Section 318 of the Income Tax (Earnings and Pensions) Act 2003 allows employers to support employees' nursery costs in a tax-efficient way. Where the conditions are met, nursery fees can be paid through an employer arrangement without being treated as a taxable benefit.
Parents pay fees from gross salary — before income tax and National Insurance are calculated — saving up to 40% depending on their tax band.
The four conditions
What must be met for the exemption to apply
Condition A
Qualifying child
Care must be for a qualifying child under 16 who lives with the employee or for whom the employee has parental responsibility.
Condition B
Qualifying premises
The premises must be registered and not wholly a private dwelling.
Condition C
Employer involvement
The employer must be involved in the provision — either on their own premises or through a qualifying partnership arrangement with a nursery.
Condition D
Available to all employees
The care must be available to all employees generally.
Key requirements
What the financing and management conditions mean
Where an employer doesn't have their own premises, Section 318 allows a partnership arrangement with a commercial nursery. To qualify, the employer must be at least partly responsible for both financing and managing the provision — not simply purchasing places.
Halo structures its arrangements with these requirements in mind, ensuring employers are involved in both the financial support and the governance of the nursery provision through our platform.
Our approach
How Halo is built around Section 318
Halo is a compliance platform designed specifically around the Section 318 framework. We handle the employer partnership setup, nursery onboarding, governance documentation, and payment flows — so employers can deliver their own workplace nursery programme without building the compliance infrastructure themselves.
We always recommend employers take independent tax advice and make our full methodology available on request.
FAQ
Common questions about Section 318
No. Tax-Free Childcare has a £500/quarter cap. Section 318 has no upper cap — the more you pay in nursery fees, the more you save. You cannot use both at the same time for the same child.
Any PAYE employer can potentially offer a workplace nursery arrangement under Section 318, regardless of size. The arrangement must meet the four qualifying conditions — which is what Halo is built to support.
HMRC has clarified that arrangements where employers do little more than purchase nursery places are unlikely to qualify. The financing and management conditions must be genuinely met. Halo structures its arrangements with this in mind and provides full documentation.
Childcare vouchers were closed to new entrants in 2018. Section 318 workplace nursery arrangements remain open with no cap on savings — significantly more valuable for parents paying substantial nursery fees.
Ready to offer workplace nursery savings?
Halo makes Section 318 accessible to any employer, any size.