Childcare Business VAT & Structure Planning

The Situation

Two entrepreneurs were launching a high end childcare and early years business in London.

They had premises, staff and a commercial plan but no clarity on how the tax side worked. They were particularly unsure about:

• Whether childcare and food would be VAT exempt
• Whether they should register for VAT
• How to pay themselves
• How to structure the business for growth

Early mistakes here could lock in years of unnecessary tax and compliance problems.

---

The Risk

Without specialist advice:

• They could charge VAT incorrectly
• Miss the opportunity to reclaim VAT on set up costs
• Overpay tax as directors
• Create a structure that blocks future expansion, franchising or sale

Most childcare businesses fail not because of demand but because they are badly structured from day one.

---

Our Review

We ran a full start up planning review covering:

• VAT treatment of childcare, meals and additional services
• Whether VAT registration was commercially and financially beneficial
• Director salary versus dividend strategy
• How the company should be structured to support growth, funding and exit

---

The Strategy

1. VAT clarified and optimised
   We confirmed that core childcare services were VAT exempt even where food was included, but that VAT registration still made sense due to large start up costs, VAT reclaim opportunities and future commercial flexibility.
2. Correct company structure built
   The company was set up in a way that allowed easy expansion to new sites, potential franchising and future holding company or investor entry.
3. Director tax planning introduced
   We built a tax efficient pay strategy for the founders using salary, dividends, pension planning and vehicle and expense strategies.
4. Long term planning embedded
   Instead of just solving today’s problem, the business was positioned for asset protection, future trusts and exit and succession planning.