Tax & National Insurance
- Register as an employer with the Inland Revenue.
- Keep a payroll record and provide payslips on her behalf.
- Pay Employee's Income Tax and National Insurance Contributions.
- Pay Employer's National Insurance Contributions.
- Provide an annual summary of all these deductions and payments.
As an employer you are also responsible for paying Statutory Sick
Pay and Maternity Pay - but the latter may be reclaimed in full
from the state.
Remember that National Insurance Contributions go towards your
employee's entitlement to unemployment and state pension benefits.
Nannies are increasingly aware of their rights as employees, and
an employer who takes care of their nanny's PAYE properly will be
considered a good employer in this respect and enjoy the increased
confidence of their nanny.
Net or Gross Wage
When nannies and nanny agencies agree a salary with the parents
they often talk about the net wage - the amount the nanny has in
her hand at the end of the week.
But in reality the nanny is always paid a gross wage (net wage
+ tax + NIC), and on top of the gross wage the parents are obliged
to pay employer's NIC. Therefore there is a considerable difference
between the net wage and the true cost of employing a nanny.
Parents are advised to find out the true cost before agreeing on
a net wage.
Fig. 1. This table illustrates
the difference between net pay and the true cost of employing a
Failure to register as an employer if you are paying your nanny
above the weekly threshold is an offence, which can potentially
lead to heavy penalties and career-damaging publicity.
Consider the following:
- Failure to file employer's annual returns by 19 May can result
in penalties of £100 per month filed late.
- Failure to pay all tax/NI liabilities before 19 April results
in interest being charged on the amount outstanding
With few exceptions (maternity nurses and nannies in continuous
temporary employment), nannies simply do not meet the Inland Revenue
criteria for self-employment.
Remember if liability to pay tax is not declared to the Inland
Revenue and it comes to light, it is you, the employer who will
be pursued for payment, not your nanny.
National Minimum Wage (NMW)
The current NMW is:
- £3.60 per hour (gross) for employees aged 18-21
- £4.20 per hour (gross) for employees aged 22 and over.
Nannies who live as part of the family household are exempt from
How to get started
Becoming an employer for the first time can be a source of great
concern. If you do not have a working knowledge of the tax system
the responsibilities and legal obligations involved can be both
time-consuming and complex.
Fortunately inexpensive, friendly, professional help is at hand.
is the UK's leading payroll service for employers of nannies and
other domestic staff. Nannytax
offers a complete support service to parents and they will not only
take care of all your payroll responsibilities for you but will
also guide you through any legal issues that may arise.
Businesses use skilled payroll, legal and human resources professionals.
You can too - at a fraction of the price by contacting Nannytax
(currently £180 + VAT for an annual subscription).
Alternatively you can do it yourself by contacting your local tax
office, which will provide you with a plethora of information on
tax and NI. Or you can use an accountant to run your PAYE scheme
for you- but this will certainly cost a lot more.