Sorting out tax if you employ a nanny |

Employing a nanny: how to sort out tax painlessly

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If you’re employing a nanny, you have to sort out their tax. And it can get complicated if you share a nanny. What’s involved and how can you minimise the stress and paperwork?

Tax and your nanny

As the employer, it’s your responsibility to sort out and pay tax for your nanny. Some parents pay their nanny cash in hand but, as well as being against the law, it’s a risky business as:

  • HM Revenue & Customs is much more proactive. These days HM Revenue & Customs proactively targets certain sectors in its quest to make sure that people don’t pay less tax than they’re supposed to. As nannying has become more professional an increasing number of nannies are keen to make sure their tax affairs are all above board. So don’t assume a prospective nanny would want to be paid cash in hand.

SAVVY TIP: The website has a guide to employing some to work in your home, which tells you how to sort out tax. Otherwise, you can use a payroll service such as Nannytax or Taxing nannies. The amount they charge varies, but is normally at least £200 a year.

How much to pay

You can easily find out how much to pay a nanny by going online and looking at adverts. Or by typing ‘nanny salary’ into a search engine. I’ve not linked to a salary report because they can quickly go out of date.

Agree a gross wage

Traditionally, and something of a throwback to cash-in-hand days, nannies agreed how much they would be paid on ‘net’ terms i.e. the amount they would receive after tax and National Insurance was paid (assuming it was being paid by the parent in the first place). However, this can cause problems:

  • You may be signing a blank cheque if you don’t know the tax code your nanny is on when you agree how much you’ll pay her or him.

SAVVY TIP: “You may assume your nanny will be on the basic rate of tax,” explains Asa Nilsdotter of Nannytax. “But if she hasn’t paid the right amount of tax in previous years she could be on a higher tax code and that means you would have to pay extra tax unless you agree a gross wage.”

Nanny sharing — the tax implications

The number of nannies being employed on a part-time basis has increased dramatically in recent years. And now, nannies may be shared between two or even three families. This will obviously cut costs, but it can bring its own problems.

  • If one nanny looks after children at the same time. If your nanny sharing arrangement is that she (or he) looks after your children and those of the family you’re sharing the nanny with at the same time, the rules are relatively straightforward.
  • If the nanny splits their week. If the nanny spends part of the week with you and the rest with another family, there may be problems unless the families can agree to split the nanny’s annual tax allowance (£12,500 in tax year 2019-20).
  • If the nanny agrees, their tax code can be split proportionally. This is straightforward to do and, if you’re using a nanny payroll service, they’ll sort it out for you.

Related articles:

Childcare options in your home; finding an au pair of nanny

Child benefit changes Q and A – how the £50,000 income limit may affect your child benefit

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