Parents face £1,000 'nanny tax' – how to afford it

Hiring a nanny is about to become even more of an expensive hassle for families, especially those in London. Here's how to cut costs

A nanny and a child are sitting on the floor in a room with a lot of toys
(Image credit: Getty Images)

Hiring a nanny isn’t straightforward. The taxman classes you as their employer – just as they do for cleaners, gardeners and other household help. This means you must pay them through PAYE, ensuring that income tax, national insurance (NI), pension contributions and student loan repayments are paid. You must also provide holiday pay, a contract and payslips.

That all means you are also liable for the higher employer’s NI that kicks in from next April. The average salary for a nanny working outside London is £40,326, according to payroll company Nanny Tax. “On this, an employer will pay £4,309 NI and £1,023 pension contributions under auto-enrolment, bringing the total cost of employment to £45,658,” says Lucy Andrews in The Sunday Times. “From April the NI bill will increase to £5,299, bringing the total cost to employers to £46,648 – an increase of £990 a year.”

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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.