Section 318 ITEPA 2003
The legislation behind the workplace nursery benefit.
The law that lets employers support nursery costs tax-efficiently. 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 lets employers support their employees' nursery costs tax-efficiently. Where the conditions are met, nursery fees can be met through an employer arrangement without being treated as a taxable benefit.
Employees pay nursery fees from pre-tax salary through Halo Pay, which lowers their taxable pay. A typical family saves in the region of £3,000 to £8,000 a year, depending on salary and nursery fees.
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 at least partly responsible for both financing and managing the provision — not simply buying nursery places.
Condition D
Available to all employees
The benefit must be open to employees generally.
Key requirements
The financing and management conditions.
Where an employer doesn't have its own premises, Section 318 allows a partnership arrangement with a registered nursery. To qualify, the employer must be at least partly responsible for both financing and managing the provision — not simply buying places.
Halo is built with those requirements in mind, so the employer is genuinely party to both the financial support and the governance of the nursery provision — recorded as you go, ready to evidence. For how this differs from a broker-run arrangement, see our guide on running your own benefit vs a broker-run scheme.
Our approach
How Halo is built around Section 318.
Halo is a compliance platform designed around the Section 318 framework. It handles the employer partnership setup, nursery onboarding, governance documentation, and payment flows — so an employer can run its own workplace nursery benefit without building the compliance infrastructure itself.
We always recommend employers take their own independent tax advice, and make our full methodology available on request.
Wondering how this compares to the government's offer? See our workplace nursery benefit vs Tax-Free Childcare comparison. And if you're ready to put it in place, our step-by-step guide to setting up a workplace nursery benefit walks through it.
This is not tax advice. Actual savings depend on your circumstances, employer participation, and nursery costs.
FAQ
Common questions about Section 318.
- What is the Section 318 ITEPA 2003 workplace nursery exemption?
- Section 318 of the Income Tax (Earnings and Pensions) Act 2003 is the legislation that lets employers support their employees' nursery costs tax-efficiently. Where the conditions are met, nursery fees can be met through an employer arrangement without being treated as a taxable benefit.
- Is the Halo workplace nursery benefit HMRC-compliant?
- Halo is a compliance platform designed around the Section 318 framework. HMRC has been clear that arrangements where an employer does little more than buy nursery places are unlikely to qualify — the financing and management conditions must be genuinely met. Halo is built so the employer is properly involved in both, with the documentation to evidence it. We always recommend employers take their own independent tax advice.
- Who runs the benefit — Halo or the employer?
- The employer runs its own workplace nursery benefit. Halo is the compliance platform that handles the employer partnership setup, nursery onboarding, governance documentation, and payment flows — so an employer can run the benefit without building the compliance infrastructure itself.
- Does it work with any nursery?
- Where an employer doesn't have its own premises, Section 318 allows a partnership arrangement with a registered nursery. The premises must be registered and not wholly a private dwelling, and the employer must be at least partly responsible for both financing and managing the provision — not simply buying places.
- How is compliance evidenced?
- The conditions are recorded as you go. Halo is built so the employer is genuinely party to both the financial support and the governance of the nursery provision, with that involvement documented and ready to evidence. Employers can take their own independent tax advice, and Halo's full methodology is available on request.
- Is Section 318 the same as Tax-Free Childcare?
- No. Tax-Free Childcare is a separate government benefit with its own cap. The workplace nursery exemption under Section 318 is employer-run and works differently. In many cases the two can be considered alongside each other, depending on your family's circumstances.
- How is this different from childcare vouchers?
- Childcare vouchers closed to new entrants in 2018. The workplace nursery benefit under Section 318 remains open and is a completely different basis — there is no equivalent cap, so it can be substantially more valuable for families paying significant nursery fees. A typical family saves in the region of £3,000 to £8,000 a year, depending on salary and nursery fees.
Ready to offer the workplace nursery benefit?
Halo makes Section 318 manageable for any employer, any size.