Setting Up a Nursery

Written and reviewed by the Childcare Accountants editorial team. Last reviewed 29 July 2026.

Opening a nursery is a real business set-up, with premises, staff, registration and a funding model that is unlike most trades. The decisions you make at the start, on structure and on how the numbers work, shape how the setting runs for years.

This is the money and structure side of setting up a nursery.

Choosing a Structure

A nursery can be a sole trader, a limited company, or a not-for-profit such as a community interest company or charity, and the right choice affects tax, liability and how you can raise money. A single small setting and a group with plans to expand are rarely best in the same structure.

Because a nursery carries staff, premises and public responsibility, limited liability often matters more here than for a one-person trade. We model the options on your actual plans rather than defaulting to one.

The Funding and VAT Position

Two things make a nursery's numbers unusual and need building into the plan from the start: the funded-hours model, where a large share of income comes at the council's rate, and the VAT exemption, which means you cannot reclaim VAT on your fit-out and equipment.

Both change the sums on a new nursery in ways a generic business plan misses. Getting the funded-to-private mix and the irrecoverable VAT into the forecast is the difference between a plan that survives contact with reality and one that does not.

Rates, Records and Getting Going

Business rates on the premises are a real cost, though relief for nurseries differs by nation, so it is worth checking what applies where you are. Alongside that you register the business, set up bookkeeping that can handle funded and private income, and get the payroll ready for staff.

We help new nurseries pick the structure, build a forecast that reflects funding and VAT honestly, and set up the accounts and payroll, as part of the set-up service. To plan it properly, tell us about your setting.

Common questions

What structure should a new nursery use?

It depends on your plans. A nursery can be a sole trader, a limited company, or a not-for-profit like a CIC or charity, and the choice affects tax, liability and funding. Given the staff and premises, limited liability often matters more than for a one-person trade.

Can I reclaim VAT on setting up a nursery?

Generally no. Childcare is VAT-exempt, so a nursery cannot reclaim the VAT on its fit-out and equipment, and if childcare is its only activity it cannot register for VAT. That irrecoverable VAT needs building into the set-up forecast.

How does funding affect a new nursery's plan?

A large share of income comes at the council's funding rate rather than a private fee, and that rate may not cover the full cost of a place, so the funded-to-private mix has to be modelled honestly in the forecast from the start.

Do nurseries get business rates relief?

There is relief in some cases, but it differs by nation, so check what applies where the setting is. It is a real cost either way and belongs in the plan.