Compliance
Below YellowNest’s strategy for meeting the conditions laid out in the regulations alongside HMRC's guidelines. There are a number of conditions within the regulations, here are some of the steps that YellowNest takes to ensure these conditions are met:
Financial Risk
The 'partnership arrangements', where an employer partners with an existing commercial nursery to provide a small number of places for its employees, is very different to a traditional workplace nursery where the employer would carry full P&L responsibility as the workplace nursery is provided solely for the use of a single employer and their employees children. Under the Partnership Arrangements your liability is limited to the fixed periodical financial contribution you make. That contribution is derived from your Class 1A National Employer savings and managed by YellowNest as part of the Operator Fee we charge (which tracks the Employer NI rate, 13.8% today, going up to 15% in April). HMRC say in their guidance regarding the Partnership Arrangements that where the viability of the nursery in unproven then funding can take the form of a regular financial contribution, which is what we do.
Nurseries
The nursery must be Ofsted (or equivalent in Wales, Scotland and Northern Ireland) registered, and the care provided on commercial premises. This benefit cannot be used where care is provided through a childminder within a home setting. The child receiving care must be aged 5 years old or under. Most providers take a similar stance to this.
Employer
The employer must make a tangible financial contribution to the running of the workplace nursery. This process is managed by YellowNest on behalf of the employer and is paid for through the Class 1 National Insurance savings generated through the salary exchange. HMRC highlighted in the above communication you referenced that a 'nominal contribution' of £100 does not meet their expectations, this is the standard approach from all other providers in the market. They simply remit an additional £100 per month with little or no oversight as to how that money is spent by the nursery. The YellowNest proposition is unique in that its funding to the nursery is uncapped and directly linked to the salary sacrifice amount as a percentage, therefore the higher the fees, the higher the employer funding will be to the nursery. This funding accrues and is allocated yearly following a strict process which I will go on to explain below in the 'employee' section.
Employee
The employee, in exchange for receiving their savings, will undertake all activity required of them in terms of acting on behalf of their employer during the process of allocating the funds, which will be facilitated by YellowNest.
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The employee, working under guidance from YellowNest, will participate in the decision process for best use of funds according to nursery needs with the aim of improving the educational outcomes for children. We are in the process of implementing a self-assessment and accreditation process for the nurseries, conducted by a former nursery manager, to create a collaborative and supportive process for the nurseries and their development.
YellowNest will take responsibility for the procuring of goods and services to the value of the funding and ensure they are delivered to the nursery. The employer signs off to acknowledge/approve the spend, thus creating a 360-degree audit trail between all parties.
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HMRC issued updated guidance regarding Workplace Nurseries as part of their Agent Update series designed for Tax Advisers and Consultants in July 2024, which we welcomed as it provides additional clarity. In that update they stated that "HMRC believes the majority of workplace nursery partnership schemes satisfy the requirements". However, they specifically called out providers of this benefit (not YellowNest), who state that their scheme as being 'HMRC approved'. HMRC will never pre-approve a salary sacrifice scheme. It is up to the provider and employer to ensure the scheme meets the conditions laid out in the regulations. It is also important to note that although HMRC's guidance has been updated, the underlying regulations remain unchanged. The regulations are the framework that YellowNest built its business around.
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YellowNest has always strived to go 'over and above' in terms of HMRC compliance, and we will continue to do so. It is on that basis that we have rapidly become the provider of choice for businesses such as yourselves, who operate in regulated environments. Our approach to compliance is unparalleled.
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To date we are working with over 300 employers to provide this service, including law firms, banks and financial services institutions. We have paid over £2,500,000 in nursery fees on behalf of working parents, and most importantly saved them in excess of £1,000,000.