Domestic Childcare

Information on Tax and National Insurance

Legal Responsibilities
Net or Gross Wage
Nanny share
Penalties
Self-employment
National Minimum Wage (NMW)
Ofsted Childcare Registration/Childcare Vouchers

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. Nannytax offers a complete support service to parents and will not only take care of all your payroll responsibilities, but will also guide you through any legal issues that may arise.

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1. Legal Responsibilities - top

We do not offer legal advice however, our understanding is that if you employ a nanny in the UK and you pay her more than £110 per week (correct March 2010) you have the same responsibilities as a commercial employer and the law requires you to:

  • Register as an employer with HMRC;
  • 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 you should obtain advice on how 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. Childcarers are increasingly aware of their rights as employees and an employer who takes care of their childcare’s PAYE properly will be considered a good employer in this respect and enjoy the increased confidence of their childcarer.

2. Net or Gross Wage - top

When childcarers and an agency agree a salary with the parents they often talk about the net wage – the amount the childcarer has in her hand at the end of the week. However, in reality the childcarer 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 childcarer. Parents are advised to find out the true cost before agreeing on a net wage. Nannytax can help with these calculations.

3. Nanny shares - top

Nanny shares are becoming increasingly common and they are particularly complex from a tax and NI perspective. Nannytax specialises in nanny shares and can help turn this hassle into peace of mind.

4. Penalties - top

Failure to register as an employer if you are paying your childcarer above the weekly threshold is an offence, which can potentially lead to heavy penalties. Consider the following:

  • Failure to file employer’s annual returns can result in penalties of £100 per month filed late;
  • Failure to pay all tax/NI liabilities results in interest being charged on the amount outstanding.

5. Self-employment - top

With few exceptions (maternity nurses and childcarers in continuous temporary employment), childcarers do not meet HMRC criteria for self-employment. Even if your childcarer has been granted self-employment status for another job, you should contact HMRC to check that her status is carried over to her job as a childcarer; we would also recommend that you get confirmation in writing. If you take on a childcarer, who you mistakenly think is self employed it could result in fines, penalties or even a criminal record.

Also, remember if liability to pay tax is not declared in full to HMRC and it becomes known, it is you, the employer, who will be pursued for payment, not your childcarer.

6. National Minimum Wage (NMW) - top

The current NMW is:

  • £3.68 per hour (gross) for employees aged under 18
  • £4.98 per hour (gross) for employees aged 18-20
  • £6.19 per hour (gross) for employees aged 21 and over

Nannies that live as part of the family household are exempt from NMW.

This information was supplied by Nannytax. If you have any further questions on this or anything else, please don’t hesitate to contact Nannytax on 0845 226 2203 or go to their website www.nannytax.co.uk

7. Ofsted Childcare Registration - top

If you are a parent and your nanny is on the voluntary Ofsted Childcare Register (vOCR), you may be eligible for childcare vouchers or tax credits. These are tax breaks that are being offered by the Government to assist with approved childcare, which includes nurseries and nannies if they are on the vOCR.

Working Tax Credits

As a parent you are entitled to claim Working Tax Credits if you family has a joint income of up to £58,175 (or £66,350 if there is a child under 1). If your family income is more than this, you are not eligible and you should read on with the next section entitled Childcare Vouchers.

If you are eligible to Working Tax Credits then you can get assistance with the cost of using an "approved" nanny as part of Working Tax Credits. For further information on whether you qualify you need to visit www.taxcredits.inlandrevenue.gov.uk

Childcare Vouchers for Parents

If you are a parent in full time employment and your employer has registered to give Childcare Vouchers, then you can save up to £ 2,000 per family per year.  The first £55 per week that you earn is now exempt from tax and national insurance (and employer's national insurance) provided that the childcare you use (nanny or nursery) is on the vOCR. If both parents receive childcare vouchers, you are each entitled to receive £55 per week free of tax and national insurance – making the total £ 110 per week. For a basic rate tax payer the tax and national insurance savings on £55 per week amounts to £18.15 per week and for a higher rate tax payer the relief amounts to £22.55 per week. Childcare voucher schemes can be given as an addition to salary, or be used as part of salary sacrifice scheme depending on the employer. Childcare Vouchers are not available if you are self employed. If you are a director of your own limited company and would like to set up a Childcare Voucher scheme you should contact your accountant.

How to get your Nanny Ofsted Childcare Registered?

The voluntary Ofsted Childcare Register (vOCR) is a relatively new scheme and many nannies are not currently registered so don’t be surprised if yours is not. However it is growing in popularity each year with 45% of nannies being registered in 2009. Your nanny will have to go through the registration process for you to be able to claim childcare vouchers from your employer. There are a number of steps that have to be followed. Please email us on enquiries@ghchildcare.com and we shall forward you and your nanny a Hassle Free Guide to getting on the Ofsted Childcare register. You do not need to be registered with Gwendolen House Childcare to receive this guide free.

Ofsted Registration is not particularly time consuming however it can take around 12 weeks to gather the required documents and for Ofsted to process the application.

How to pay your Nanny with Childcare Vouchers

As a parent, Childcare Vouchers are just a different way of paying your nanny. Her salary will not change when you start using vouchers, nor will the amount of tax and NI you pay on her behalf.

Your employer will use paper or electronic vouchers and the mechanics of the two are slightly different. The vouchers are issued directly to you from your employer. Paper vouchers are either handed directly to you, or sent in the post. Electronic vouchers are deposited into a virtual account which is held with the voucher provider. If your Ofsted Registered Nanny is not already registered with a childcare voucher company a welcome pack will be sent to you with a registration form for your nanny to complete filling in with her Ofsted Registration Number. If paper vouchers have already been issued these need to be included when your nanny sends in the registration form to the childcare voucher company.

Once the Childcare Voucher Company has received the registration form they will issue your nanny with a unique service provider number. If electronic vouchers are used you need to authorize the transfer of the value of the vouchers from their virtual account into one that has been set up for your nanny. Once the childcare voucher provider has received confirmation of transfer they will issue payment to the value of the vouchers.

Your nanny has the option of being paid either by BACS or by cheque. It will take approximately three days for the BACS payment to clear into her bank account. As her employer you may wish to consider moving your nanny's payday to offset any possible delays. Initially there will be a slight delay, but once the account is up and running it should operate smoothly without any further delays.

Who should pay for Ofsted registration?

This is completely up to you, and for you to discuss with your nanny. However we recommend that the nanny should pay for most of the costs, except for the annual fee of £ 103. This is because the Ofsted registration enhances a nanny's qualifications and professional standing. The nanny should absorb the cost of a First Aid certificate, nanny insurance (if they do not already hold these), plus pay for the application fee (£103) and Common Core Skills training (£ 150 if needed). The annual fee for being registered with Ofsted is £ 103 and we feel this should be paid for by the family.