Tax and National Insurance

When you are talking to a nanny, or a nanny agency, about a nanny's fee you generally talk about a net wage, i.e. the amount the nanny has in her hand at the end of the week. This doesn't take into account the nanny's tax and National Insurance Contributions, these are paid to the Inland Revenue by the nannies employer - YOU.

If you pay your nanny more than £76 per week (or she has more than one job and earns more than £84 per week in total) you are legally required to: register with the Inland Revenue as an employer and operate a PAYE (Pay As You Earn) scheme, keep a payroll, and produce yearly accounts of all payments. In addition to her net salary you must pay:

1. Her income tax.
   
2. Her National Insurance Contributions.
   
3. An Employer's National Insurance Contribution (i.e. as her employer you are responsible for making this additional contribution).

This adds a considerable amount to the sum you pay every week and before you even think about engaging a nanny you should check how much the total cost of employing her is going to set you back.

What's the basic rate?
The least amount that you can pay a nanny is the National Minimum Wage - currently £3.20 per hour (gross) for employees aged 18 to 21 and £3.70 per hour for employees aged 22 and over. Live-in nannies who live as part of the family household are excluded from the NMW and parents can offset part of the NMW (up to £19.50 per week) for nannies for whom separate accommodation is provided.

Aren't Nannies self-employed?
No, nannies don't meet the Inland Revenue criteria for self-employment status. The only childcarers that do are maternity nurses who are responsible for their own tax and NI contributions.

But it's not my tax, can I get away with not paying it?
Absolutely not. It's not the nanny that the taxman will be after for the contributions, it is you. You are not doing your nanny a favour by paying her tax and NI - although the convention of agreeing a net wage may make it appear so. It is an offence not to register as an employer. You are legally obliged to pay her tax and can be fined if you don't. The Inland Revenue will charge penalties of £100 per month for filing your employer's annual return late and will charge interest for paying your tax/NI late. Employers are also responsible for paying Statutory Sick Pay and Statutory Maternity Pay (should your nanny get pregnant) - but the latter can be reclaimed in full from the state.

My nanny is foreign do I have to pay her tax and NI?
Yes. All employment in the UK falls under the UK tax system, irrespective of the country of origin of the employee.

How do I work it out?
Total cost to you = Net + Tax + Employees National Insurance + Employer's National Insurance Contribution eg:

Working out the right tax band and calculating NI contributions can often be a headache. Use our NANNYTAX Calculator to find out how much the total cost would be on other net pay rates.

Where do I start?
Register as an employer by calling your local tax office. In return they will send you lots of bumpf on tax and NI tables. You will be required to make Tax and NI payments on a quarterly basis so make sure you make provision for these payments.

Help! Can't someone do it all for me?
Yes. You could use a specialist payroll service for domestic employers like Nannytax (currently £140 + VAT for an annual subscription) who will also provide unlimited advice on all current employment legislation. This is equivalent to having your own (outsourced) personnel and payroll departments at hand. They will keep all PAYE records for you, send annual returns on your behalf to the Inland Revenue, and send you regular payslips for your nanny and payment slips for your tax and NI liability. You could also use an accountant to run your PAYE scheme (but this will certainly cost more).