Running a nursery in the UK comes with rising costs — from staff wages and rent, to supplies, insurance, and compliance. While you focus on giving children the best care, it’s easy to overlook one area that could save you thousands each year: tax planning.
With the right strategies, day care and nursery owners can significantly reduce their tax bills — all while staying fully compliant with HMRC. In this blog, we break down expert, accountant-approved tips to help you keep more of your hard-earned income.
Top 10 tax saving strategies every UK nursery owner should know
Running a nursery costs a lot, but knowing the tax rules can help you keep more of your money. These ten tips show the best ways UK nursery owners can lower their tax bills legally and easily.
1. Claim every allowable business expense
Many nursery owners miss out on deductions simply because they don’t record everything they spend. Here are common allowable expenses you should be claiming:
| Expense category | Examples you can claim |
| Staff costs | Salaries, national insurance contributions, training courses, uniforms |
| Premises costs | Rent, utilities, repairs, cleaning, security |
| Supplies and activities | Toys, books, learning materials, arts and crafts, outdoor equipment |
| Administration | Software, advertising, printing, website, phone bills |
| Insurance | Public liability, employer’s liability, business insurance |
| Professional services | Accountancy fees, legal advice, HR support |
Tip from accountants: Keep digital receipts and use bookkeeping software (like Xero or QuickBooks) to automatically tag expenses — it makes filing quicker and avoids last-minute panic.
2. Take advantage of capital allowances
If you’ve invested in long-term assets — such as playground equipment, safety gates, CCTV or IT equipment — you may be eligible for Annual Investment Allowance (AIA). This allows you to deduct 100% of qualifying purchases from your taxable profit in the same year.
For example:
- New outdoor climbing frame costing £4,000 → Full £4,000 deducted from profit
- Security system costing £1,500 → Fully deductible
Don’t forget vehicles too — if your nursery owns a car, minibus or delivery van, this may also qualify.
3. Use the VAT Flat Rate Scheme (if eligible)
If your annual turnover is under £150,000, you could benefit from the VAT Flat Rate Scheme. Instead of reclaiming VAT on every purchase, you pay HMRC a fixed percentage of your turnover — and keep the difference.
Many nurseries barely reclaim VAT on costs anyway, so switching to this scheme often results in instant savings with less admin.
Important: Your accountant can calculate whether this is right for you before switching.
4. Pay yourself tax-efficiently
If you operate as a limited company, the way you take money out of the business affects how much tax you pay.
Most nursery owners use a mix of:
- Salary (keeps you eligible for state pension without paying extra NI)
- Dividends (taxed at a lower rate than salary)
Used correctly, this strategy can save hundreds or thousands per year — but it must be structured properly to stay compliant.
5. Hire family members (legitimately)
If your spouse or older children genuinely help your business by providing their services for roles such as admin, cleaning, social media, or school runs — you may be able to pay them a fair salary through the business.
This shifts income into their lower tax band while reducing your business profit — which lowers your overall tax bill.
Warning: You must pay them realistic wages and keep records of the work they do to satisfy HMRC.
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6. Claim use of home expenses (if you work from home)
Many nursery owners don’t operate the childcare inside their house — but still manage paperwork, planning or training from home. In these cases, you may be able to claim a portion of:
- Heating and electricity
- Internet and phone bills
- Office furniture or equipment
You can either use HMRC’s flat rate or calculate a percentage based on usage — your accountant will determine which method gives you the best return.
7. Claim travel and mileage
Do you:
- Drive to suppliers?
- Attend training?
- Visit parents for meetings?
- Travel between multiple nursery locations?
If so, you can claim 45p per mile for the first 10,000 business miles, then 25p thereafter.
Just keep a mileage log or use a tracking app — many nursery owners forget to claim this and miss hundreds of pounds in tax relief each year.
8. Use childcare grants and Government funding wisely
If you receive Government-funded childcare payments (15 or 30 hours free childcare), remember:
- These count as taxable income.
- But related costs (staff time, food, utilities) can be offset against it.
Many nursery owners overpay tax because they don’t correctly match income and cost categories. Proper bookkeeping avoids this mistake.
9. Consider incorporating – Sole trader vs limited company
If your profit exceeds around £30,000-£40,000 per year, switching from a sole trader to a limited company could reduce your tax significantly.
Why? Because:
- Sole traders pay up to 45% income tax
- Limited companies pay 19-25% corporation tax
- Dividends are taxed at a lower rate
However, incorporation comes with more admin and responsibilities, so it’s best to get professional advice before making the jump.
10. Plan ahead — don’t wait until year-end
The biggest tax mistakes happen when nursery owners:
- Hand everything to their accountant in January
- Miss out on allowances because they didn’t plan purchases earlier
- Pay too much in tax simply due to disorganisation
Instead:
- Review finances quarterly
- Forecast profit before the tax year ends
- Time equipment purchases strategically
- Ask your accountant to suggest tax-saving actions before 5th April
A little planning often makes the biggest difference.
The best tax strategy? Work with a specialist accountant
The childcare sector has unique tax rules, and HMRC is becoming stricter about record-keeping and employment regulations.
A specialist accountant who works with nurseries can identify allowances you’re currently missing, set up your structure to minimise tax legally, handle payroll, VAT, and funding compliance and free up your time so you can focus on children — not spreadsheets
Saving tax isn’t about cutting corners — it’s about knowing the rules and using them wisely. With the right strategy, you can protect your profits, grow your nursery sustainably, and sleep at night knowing your finances are fully under control.
Want to save on your nursery’s tax? Get in touch with our specialist accountants today for advice and support.
