Working parents of young children are using a lesser-known Government scheme to slash the cost of expensive childcare fees by thousands of pounds a year.

So-called ‘workplace nursery benefit schemes’ are a valuable help for financially stretched families as the cost of childcare continues to soar.

Many employers offer this tax break, which allows parents to save by paying their nursery fees out of their salary before income tax and National Insurance is paid.

For Emily Summerson, 32, and her husband Reginald Port, 35, the benefit means they save £22,966 a year on nursery fees for their three children Reginald, three, Cordelia, two and ten-month-old Priscilla.

With both Emily and Reginald working full time, as the chief executive of flooring manufacturer Vuba Chemical Innovations and managing director of incineration firm Energy Works, respectively, their two older children attend nursery four days a week, while the youngest is there for three days. Extended members of their family help out on the remaining days of the week.

Without any support, the family, who live in Swanland, East Yorkshire, faced nursery bills of £3,600 a month – £43,200 a year.

However, Emily, who is an additional rate taxpayer, has set up a nursery salary sacrifice scheme via third-party firm Kinsail at her company. This reduces their monthly bill by 47 per cent to £1,913 a month. This is because Emily no longer pays 45 per cent tax on her income and NI before the fees are paid.

Emily says: ‘It’s a no-brainer for us. 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.’

For Emily Summerson, 32, the benefit means a saving of £22,966 a year on nursery fees for their three children Reginald, three, Cordelia, two and ten-month-old Priscilla

With both Emily and Reginald working full time, their two older children attend nursery four days a week, while the youngest is there for three days

The salary sacrifice scheme works by giving you a lower gross salary in exchange for a non-cash benefit, in this case your employer pays your nursery fees directly.

Many employers use third-party companies that specialise in setting up salary sacrifice schemes and help get nurseries on board.

To qualify, your child must attend an Ofsted-registered nursery that participates in the benefit. HMRC also requires employers to take an active part in financing and managing the nursery, to ensure it complies with tax rules.

This means employers pay an extra contribution of at least £100 a month towards fixed nursery costs. This must be spent on equipment or resources, such as staff training or facilities.

Sarah Coles, head of personal finance at AJ Bell, says: ‘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.

‘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 who use third-party firms who facilitate the scheme.

The scheme was introduced in 1990 and was designed to encourage employers to run a nursery and provide places for children of staff, either by opening an onsite nursery or by teaming up with other businesses to jointly finance one.

Emily, who is an additional rate taxpayer, has set up a nursery salary sacrifice scheme via third-party firm Kinsail at her company

To meet the strict tax requirements, parents who sign up to the tax break are often required to meet with nursery managers to discuss how the money should be spent, or share their wishes in writing, and they can be required to attend meetings to take part in a committee.

Emily says the scheme was easy to set up. ‘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.

‘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.’

The mum-of-three says she asked her nursery if there was anything they wanted to buy in terms of safety equipment. She adds: ‘We agreed loosely what the money would be spent on. The nursery raises an invoice for your fees to the employer and the employer pays it. Then you receive your salary minus that amount.’

There is no limit on how much you can save via the salary sacrifice scheme. Individual family savings will be based on the size of your nursery bill and how much you earn. Higher earners stand to gain the most.

A basic rate taxpayer who spends £1,000 a month on nursery fees (£12,000 a year) could save £3,360 a year by using this scheme, while a higher-rate taxpayer with the same nursery cost could save £5,040 a year. This is because they save 40 per cent in tax, instead of 20 per cent.

This can be incredibly valuable for parents who are struggling to cover the eyewatering cost of childcare.

The average cost of a full-time nursery place for a child under two in the UK is £7,738 a year (£645 a month) for parents receiving 30 funded hours a week, according to the 2026 annual survey from children charity Coram. But in London and the South East the price can come in above £20,000, even with Government funding.

Working parents can get up to 30 hours of free childcare hours for children aged nine months up to four years old, spread over 38 weeks.

You can also use tax-free childcare which gives parents up to £2,000 a year free childcare, based on parents payment being topped up by £2 for every £8 they pay in.

However, once one parent earns more than £100,000 both of these benefits are lost. Emily, who earns more than this and therefore does not qualify for the support says: ‘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.’

Before signing up to the scheme, parents should ensure they won’t lose out by taking a lower gross salary. In some circumstances, this can have negative consequences.

For example, it could reduce your mortgage affordability as it affects your take-home salary.

You may also find that your pension contributions are lower for the years where you use the childcare scheme. This is because some employers take your salary post-salary sacrifice to calculate pension contributions but it will depend on your employer’s policy.

It’s worth checking with your employer before signing up.

Coles says: ‘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.

‘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.’