Legal essentials for group settings

If you've decided to set up a nursery or pre-school, there are some legal ins and outs you need to know. We've answered some of the key questions.

What kind of business structure should I have?

When you set up your own business, you need to register with HMRC so that you can pay tax and National Insurance.

There are several ways in which you can register a business:

Sole trader: As a sole trader, you would be the sole owner and operator of your business. You would be 'self-employed' and profits from your business would come directly to you. However, if your business runs into financial trouble, your personal assets are at risk too.

Click here for more information on the GOV.UK website.

Limited Liability Partnership: You can run a Limited Liability Partnership with two or more members. A member can be a person or a company, known as a 'corporate member'. Each member pays tax on their share of the profits, but isn't personally liable for any debts.

Click here for more information on the GOV.UK website.

Limited Company: Limited companies must register with Companies House. A Private Limited Company (LTD) is 'limited by share' or 'limited by guarantee'. A public Limited Company (PLC) has shares and stocks that are open to the public.

A Limited Company is run by a board of directors. It is legally separate from the people who run it, and has separate finances from your personal ones.

Click here for more information about how to set up a charity on the GOV.UK website.

What name do I give my business?

The right name can certainly help you stand out among the competition. Choosing a short, simple and memorable name is a good idea. There are some things you will have to consider. For instance, you must not choose an offensive company name, or a name that is the same as an existing trade mark. Neither can you suggest a connection with government, local authorities, or royalty, unless you get permission.

Read more about setting up and naming your company or limited liability partnership here

Information for sole traders is slightly different, so do read up on your situation.

What if someone offers to help finance my business?

If someone offers to invest in your business, even if it's a family member, get an agreement in writing and arrange for a solicitor to check it. If someone helps you financially, it may be that you enter into a partnership without realising it. Also, that person may be legally able to claim a share of your business profits.

Make sure you are clear about the terms of the investment - is it meant to be a gift, or a loan which you will need to repay? If it is a loan, will you need to pay interest? Always take professional advice to avoid potential problems later.

I've heard about data protection - how does that affect me?

As a registered childcare practitioner, you're expected to keep detailed records about the individual children in your care, and their learning and development. This is likely to include photos of the children and personal information. If you keep these on a computer, your business will need to register as a data controller with the Information Commissioner's Office (ICO).

The ICO is the UK's independent public body, set up to promote access to official information and protect personal information. The ICO enforces and oversees the Data Protection Act.

You must be aware of all data protection laws for holding photos of and information about the children in your care.

PACEY members can read our factsheet on registering with the ICO, which includes information about exceptions to registration. 

If you are in any doubt about whether or not you need to register, or if you know of someone in need of further clarification, you can call the ICO on 0303 123 1113.

You will also need to ensure you comply with GDPR, the 'General Data Protection Regulation'. Further guidance can be found here.

What do I need to know about employing staff?

Anyone who employs staff must work within the laws on employment. You will need to make sure you respect your employees' legal rights, and fulfil your tax, pension and other duties. There are some key things to think about:

  • All staff employed to work at a childcare setting must have an enhanced DBS check to ensure that they are suitable to work with children.
  • Be sure to check that all your new employees are legally entitled to work in the UK, or you could be heavily penalised.
  • You should have a signed contract of employment ready from the day any employee starts work.
  • As an employer, you must make sure you treat your employees in a fair and consistent manner and will need to demonstrate that they will not be discriminated against or harassed on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion and belief, or sex.
  • You must register under the Pay As You Earn (PAYE) scheme with HMRC to operate staff payroll.
  • You will also need to think about pension arrangements for your employees.
  • Consider your recruitment, induction, supervision and appraisal processes, policies and procedures.
  • As a business owner, also remember that you have important legal obligations concerning health and safety.
  • Ensure that you build staffing considerations into your budget, such as training and continuous professional development.

You can check whether any staff you work with are exempt from PAYE using a online tool.

What should I do about insurance?

If you're running a nursery or pre-school, you'll need specific types of insurance to protect your business. These include:

  • Employers' liability
  • Equipment breakdown
  • Legal expenses and protection
  • Loss of revenue
  • Nursery contents
  • Personal accidents
  • Personal possessions
  • Professional indemnity
  • Public and products liability

Find out more about insurance for group settings here.

How do I make sure I have the right agreements and contracts in place with parents and carers?

It is really important that you have the right contracts and agreements in place with your parents.

PACEY members get access to a 24/7 Legal Advice Line where qualified solicitors are on hand to offer you practical advice. Members also benefit from up to £100,000 Legal Expenses Insurance, which could assist you if you have a dispute with a parent or guardian about the terms of your contract.

Getting the right contracts and legal support in place will give you peace of mind and enable you to get on with running your childcare business, safe in the knowledge that you have full legal protection.

Do I need a music licence?

If you plan to play recorded music in your setting, including TV, radio, CDs, or streaming music on your tablet or smartphone, you may need to apply for a special license.

A joint licence from PPL and PRS for Music, tailored to nurseries, is available for around £80 a year. Read more information about the joint PPL and PRS for Music Licence.

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