VAT for Nurseries and Childcare
Written and reviewed by the Childcare Accountants editorial team. Last reviewed 29 July 2026.
VAT works the opposite way round for a nursery than for most businesses, and it surprises owners who expect to reclaim the VAT on their costs. Childcare is exempt from VAT, which sounds like good news and is, in part, but it has a real sting for a nursery buying equipment and refurbishing premises.
This is how the exemption works and the catch it creates.
Why Childcare Is Exempt
The care of children is exempt from VAT under the welfare exemption, in the VAT Act 1994, Schedule 9, Group 7. A registered nursery or childminder does not charge VAT on its fees, which keeps the price to parents down.
The catch is on the other side. Because the activity is exempt, not zero-rated, a nursery cannot reclaim the VAT it pays on what it buys for the childcare: the equipment, the toys, the refurbishment, the professional fees. That VAT is a real cost the setting absorbs.
When You Cannot Even Register
If childcare is your only activity, you are making no taxable supplies, so you cannot register for VAT at all, and the question of reclaiming does not arise. Many nursery owners assume they should register to recover VAT on a big fit-out, and are surprised to find they cannot.
That makes the timing and structure of large purchases matter. There are ways to plan around a major refurbishment or expansion, but they need thinking about before the spend, not after.
The Partial-Exemption Trap
It gets more involved where a setting has other, taxable income alongside the exempt childcare, for example goods sold to parents or a differently structured holiday club. Then you may be able to register and reclaim some VAT, but only through partial exemption, which apportions your input VAT between the exempt and taxable sides.
Partial exemption is fiddly and easy to get wrong, and getting it wrong means either over-reclaiming, which HMRC will unpick, or under-reclaiming, which costs you. It is a core part of nursery accounts and worth having handled.