The purpose-built centre at Hythe community school, opened last month after head Jennie Carter and her staff raised pound;116,000 within a year.
It is run as a charity but faces the tax demand because it charges pound;2 an hour for the nursery and pound;5 for three hours' childminding after-school. The VAT relates to building costs and customs and excise officials have said that even non-profit-making orgainisations are not exempt.
Mrs Carter is considering lending th school the cash for the bill herself. She said there were no plans to increase charges to users.
The Government has pledged every three-year-old whose parents want it will get a free nursery place by September 2004. In the light of this, Mrs Carter said, charging VAT meant the Government was shooting itself in the foot. She added that early-years centres like hers should get government support - most of the money she raised came from businesses or private individuals.
Michael Howard, Tory MP for Folkestone and Hythe, wants the Government to clarify the centre can be exempt from VAT. "If it can be, then it ought to be," he said.