First, you become responsible for paying the nanny's tax and National Insurance, as well as an employer's NI contribution.
The Inland Revenue has tried to make it easy by introducing the Simplified Deductions Scheme. It applies when the nanny's taxable pay does not exceed pounds 160 per week (equivalent on a single person's coding to gross pay of pounds 233). If you tell your tax office when you first hire your nanny it will assign you a PAYE reference number and send you a pack of the appropriate forms, tables and guidance notes.
There is a snag. Nannies' salaries are generally quoted net. The tables in your nanny pack assume you know the gross pay and tell you how to work towards the net. If you want to work the other way (net to gross), there is nothing for it but to guess at a gross figure (our table should help) and calculate a net figure from it.
On the other hand you may be lucky and find that your tax office has already worked out the figures. That may be exceptional. A Revenue spokeswoman pointed out that a potential hazard of agreeing to pay a nanny an amount of money after tax is that she might have a zero tax code or have back tax to pay. Agreeing a gross wage would make more sense.
Settling on a gross wage also avoids ambiguity when tax rates change. Talking in gross terms can also help avoid problems if you and another family are sharing a nanny. What you must beware of is the other employer deducting the whole of the nanny's personal allowance from what they pay her, leaving you to deduct tax from all of what you pay.
Under the Simplified Deductions Scheme, you can pay the tax due to the Revenue on a quarterly basis, multiplying the tax and NI figures by the number of weeks in the quarter (assuming weekly pay).
You can pay someone else to sort out nanny's tax for you. Nannytax (01273 626256) in Brighton provides an annual payroll service for pounds 120 plus VAT. For this it sends you a quarterly summary of payments due, provides payslips, issues P45s when a nanny leaves, P60s at the end of the tax year (although P45s and P60s aren't actually a requirement under the Simplified Deductions Scheme) and forwards the annual return for you to sign. It will also perform any Statutory Sickness Pay (SSP) or State Maternity Pay (SMP) calculations for you.
The Revenue denies rumours that the tax inspectors who were released from other duties under self-assessment will be targeting households with nannies. Some employers do seem to take their responsibilities more seriously than others, though. One said she felt fine about skipping tax and NI contributions because she used overseas nannies who were too fit to bother the National Health Service and would be back home before they needed pensions.
Canny nannies can check up on what employers are doing by asking for the PAYE scheme reference and ringing your tax office, quoting their National Insurance number and finding out what has been paid.
Increasing professionalism is also likely to see them demanding a written contract. According to Pann (the Professional Association of Nursery Nurses), which represents professionally qualified nannies, employers have a legal obligation to put a nanny's Particulars of Employment - including all conditions of service - in writing within eight weeks of her starting work.
Pann is currently preparing a booklet, All You Need to Know About Working as a Nanny, which includes a sample nanny contract and Guidelines for Employers. This will be available from Pann on 01332 343029.
You may want to look, too, at Tax and Child Care (IR115), from Tax Enquiry Offices. The new Employer's Helpline (0345 143143) can also help with general PAYE or NI enquiries.
Costs of a nanny each week (pounds )1
Net Gross Total cost
pay 2 Pay 3 to the
70 72 75
80 86 89
90 101 104
100 115 121
110 129 136
120 144 151
130 158 169
140 174 186
150 189 202
160 204 218
170 219 241
180 234 258
190 250 275
200 265 292
210 280 308
220 295 325
230 310 342
240 325 358
250 340 375
260 355 392
270 372 408
1 Figures supplied by Nannytax.
2 What the nanny receives.
3 The nanny's agreed wage, including tax and employee's NI.
4 Total cost to employer, including employer's NI.
Note: Calculations based on a single person's tax allowance.
q Check your employer's liability cover under your household policy.
q Ensure your nanny is insured if she will be driving your car.
q Tell your insurer there is a nanny living in the house.
q Find out if your nanny has her own insurance cover. PANN offers its members a public liability policy with cover of up to pounds 1m.
q Statutory Sick Pay (SSP), at a rate of pounds 10.91, is paid from the fourth day of illness and is reclaimable in part. Statutory Maternity Benefit (SMP) is payable if, 15 weeks before the baby is due, someone has worked for you for at least 26 weeks.
It is reclaimable in full.
q If you give your nanny a car (for her private use), it is a taxable benefit for her if she earns pounds 8,500 or more per year.
q There is no tax relief on what you pay a nanny. Paying a nanny pounds 14,000 will cost you pounds 20,000 of your pre-tax income, pounds 23,000 if you are a higher rate taxpayer.Reuse content