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, which are paid to the Inland Revenue by the nanny’s employer - YOU.

Employees start to attract liability for national insurance contributions when they earn more than £79 per week, although you won’t have to make any contributions until they earn over £97 per week (these figues may change after April 2007) If you are paying your nanny more than this 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 the net salary you must pay:

1. Income tax.
2. National Insurance Contributions.
3. An Employer's National Insurance Contribution ( as the 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 will be.

What's the basic rate?
The least amount that you can pay a nanny is The national minimum wage is currently £3.40 for employees between 16 and 17 and £4.60 for employees between 18-21 and £5.52 for employees over the age of 22. These figures are from 1 October 2007.

Theste Live-in nannies who live as part of the family household are excluded from the NMW and parents can offset part of the NMW 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 childcarers that do are maternity nurses and childminders 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 the 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 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 and National Insurance 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 still have to pay 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?

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 information on tax and National Insurance 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 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).