Do nurseries charge VAT on childcare fees

Most nursery fees carry no VAT. Day care for young children is an exempt welfare service under Item 9 of Group 7, Schedule 9 to the VAT Act 1994 when it is supplied by a charity, a public body or a nursery registered with Ofsted or the equivalent regulator. The same care from a provider outside those categories is standard rated, and anything that can be separated from the care, such as an activity class or goods sold on their own, follows its own VAT rules.

Why is nursery care usually exempt from VAT?

Item 9 exempts the supply of welfare services, and of goods supplied in connection with them, by a charity, a state regulated private welfare institution or agency, or a public body. Note (6) to Group 7 defines welfare services to include services directly connected with the care or protection of children and young persons. HMRC’s VAT Notice 701/2, paragraph 2.2.1, lists day care services such as those provided by a nursery, playgroup or after school club among the exempt services, alongside care in a children’s home and the placement of a child with foster carers.

Two tests therefore have to be passed: the right kind of supplier and the right kind of service. HMRC’s manual at VATWELF3030 stresses the second test. Exemption covers services directly related to the care and protection of specific children, not children in general, and the fact that a provider is registered with Ofsted, whether compulsorily or voluntarily, does not on its own make every service it sells exempt.

Exempt is not the same as zero rated. A nursery charges parents no VAT, but it also cannot reclaim the VAT on the costs of making those exempt supplies. Our guide to zero rated and exempt supplies explains why that difference affects a nursery’s costs, and the wider rules for care providers are on our page about welfare services and care.

Which nurseries count as state regulated?

Note (8) to Group 7 treats a provider as state regulated if it is approved, licensed, registered or exempted from registration by a Minister or other authority under a public general Act. Notice 701/2, paragraph 3.3.1, names the regulators HMRC has in mind, including Ofsted, the Care Quality Commission, the Scottish care regulator, the Welsh care inspectorate and the Northern Ireland Regulation and Quality Improvement Authority, together with any other similar regulatory body.

Timing is strict. Paragraph 3.3.2 says a provider becomes state regulated only when the regulator approves its application to register. While the application is being considered it is not state regulated and cannot exempt its welfare services. Note (6) adds that, for a state regulated private institution, the exemption reaches only the services in respect of which it is regulated.

Nurseries run by charities and councils qualify through the other two routes. A charity must hold evidence of registration with the Charity Commission for England and Wales or, if it is not registered there, evidence that HMRC has formally recognised it as a charity for tax purposes (paragraph 3.1). A local authority is a public body under Note (5).

When is childcare standard rated?

Care supplied by anyone outside the three qualifying categories falls outside Item 9. Because no other relief covers it, it is taxable at the standard rate of 20% if the provider is registered for VAT. Within a qualifying nursery, Notice 701/2 paragraph 2.2.3 lists services that are not welfare at all, including:

• play centres and activity based clubs offering football or dancing lessons, indoor soft play and children’s entertainment
• training of carers or potential carers that is not linked to the needs of a specific child
• education of children, which is exempt only under the separate education rules where those apply

Older children are a special case. Registration for non residential care is required only where a designated number of hours of care is given to children under 8. Paragraph 2.2.2 lets a qualifying provider that cares commercially for children under 8 as well as older children, and offers the older children comparable activities, choose to treat the care of the over 8s as exempt too.

How are meals, snacks and other extras treated?

Goods supplied as part of the exempt care share its exemption. Paragraph 3.4 of Notice 701/2 gives meals and refreshments provided in the course of care with no additional charge, and picture books, crayons and toys provided by a nursery in connection with the care. VATWELF3040 adds drinks to the list. So the lunch, snacks and play materials covered by the daily fee are exempt with the care.

The same paragraph warns that goods that can be separated from the welfare service, or are not provided in connection with it, are not exempt. Note (7) to Group 7 also says catering falls within Item 9 only where it is ancillary to the care. When an item is genuinely sold on its own, it takes the VAT liability it would have anywhere else. VATWELF3040 gives the example of newspapers supplied separately from care, which are then zero rated. A meal that is a separate purchase rather than part of the day’s care is judged under the food and catering rules, where food supplied in the course of catering is standard rated (VAT Notice 709/1, paragraph 1.3); our page on catering and hot takeaway food covers those rules.

Charges to people other than the children are outside the exemption. VATWELF3040 says supplies to visitors, relatives or carers do not generally qualify.

What about nursery classes run by private schools?

Since 1 January 2025, education and vocational training supplied by a private school for a charge has been standard rated, as explained on our page on VAT on private school fees. Nursery classes were left out of that change. VAT Notice 701/30 says a nursery class, meaning a class wholly or almost wholly made up of children below compulsory school age, is still exempt. Compulsory school age is 5 in England and Wales and 4 in Northern Ireland, and school age in Scotland is 5. Notice 701/30 also confirms that day nurseries, crèches and playgroups for children under 5 are dealt with under Notice 701/2 rather than the education rules.

Does a nursery need to register for VAT?

Only taxable income counts towards the registration threshold. GOV.UK defines taxable turnover as the total value of everything sold that is not exempt or outside the scope of VAT, and a business must register if that total for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days. A business that sells only exempt services does not have to register. Notice 701/2, section 4, makes the same point for welfare providers: most of their supplies are likely to be exempt, so many will not need to register, but a provider that also makes taxable supplies above the threshold must, and one below it may register voluntarily. Our page on the VAT registration threshold explains the tests.

Once registered, a nursery making both exempt and taxable supplies will be partly exempt. It can generally recover VAT only on costs linked to its taxable income, with shared overheads apportioned under the partial exemption rules. Charities running nurseries should also check the purchase reliefs in VAT Notice 701/1, which Notice 701/2 paragraph 4.1 points to.

How does this work in practice?

Illustration only. A nursery registered with Ofsted charges parents £60 a day, which includes lunch, snacks and all play materials. That fee is exempt in full. On Saturday mornings the nursery also runs a toddler football class open to the public at £8 a session. Football lessons are an activity, not welfare, so the class is a taxable supply. While the nursery’s taxable turnover stays at or below the threshold it does not have to register and charges no VAT. If it registered, each £8 session would include £1.33 of VAT (one sixth of the price), and the nursery could reclaim a share of the VAT on its costs that relates to the football income.

What mistakes come up most often?

• Assuming that Ofsted registration makes everything a nursery sells exempt. VATWELF3030 says the nature of each service decides the position.
• Treating care as exempt while a registration application is still pending, which paragraph 3.3.2 of Notice 701/2 rules out.
• Forgetting to monitor taxable income such as activity classes, hall hire or goods sold separately, which counts towards the £90,000 test even though the core fees do not.
• Reclaiming VAT on costs of exempt childcare after registering for a small taxable activity.
• Pricing meals or extras separately without asking whether they are genuinely separable from the care.

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Related Accountapedia entries

• Employer supported childcare and workplace nurseries
• Can I claim childcare as a business expense
• Tax Free Childcare: eligibility and how it works
• Companies House fees
• Do I charge VAT when selling business assets

Sources

• legislation.gov.uk: Act 1994 c. 23, schedule 9
• GOV.UK: Welfare services and goods notice 7012
• GOV.UK: www.gov.uk
• GOV.UK: www.gov.uk
• GOV.UK: Catering takeaway food and vat notice 7091
• GOV.UK: Vat on education and vocational training notice 70130
• GOV.UK: Register for vat
• GOV.UK: Vat rates

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.