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The ins and outs of nanny tax

6th September 2021

nanny tax

When we say nanny tax, we don’t just mean your tax return if you’re a self-employed nanny or childminder. As a parent or guardian, you also may have to think about HMRC when you approach someone to look after your children. As with most things tax, the devil is in the detail. So we’ve put together this blog to explain the tax implications of both working as a nanny, and of hiring a nanny to work for you. 

Nanny tax for childminders

As a self-employed nanny or childminder, you’ll be responsible for declaring your earnings to HMRC yourself. You do this via a tax return – a process where you submit your earnings and expenses over a 12 month period. The deadline to file and pay your tax return is 31st January, and you’ll be declaring your earnings from 6th April to 5th April the previous year.

How do I work out my taxes?

  • You become a self-employed nanny in July 2020
  • Calculate your earnings between 6th April 2020- 5th April 2021
  • Tell HMRC you’re self-employed by 5th October 2020
  • Your taxes are due on 31st January 2021
  • The moment you file, you find out what you owe in tax – but you won’t be charged until 31st January. So file as early as you can!

When it comes to the taxes you’ll owe, this all depends on how much you earn. As a general rule, there are two taxes that you’re potentially liable to pay:

  1. Income Tax

You owe this when you earn more than £12,570 per year (in the 2021/22 tax year). Here are the rates to be aware of:

IncomeTax rate
Up to £12,5700%Personal allowance
£12,571 to £50,27020%Basic rate
£50,271 to £150,00040%Higher rate
over £150,00045%Additional rate
  1. National Insurance

National Insurance is a tax you pay that entitles you to certain state-provided benefits. These include things like the State Pension, Job Seeker’s Allowance, Maternity Allowance, access to the NHS and more. But there’s more than one type of National Insurance: in fact, the different types are split into classes. The class you pay depends on your employment status and how much money you earn. As a self-employed nanny, you’ll pay one of the following:

  • Class 2 National Insurance – a flat £159 per year when you earn more than £6,515
  • Class 4 National Insurance – 9% (or 2% if you earn more than £50,270 per year) of your income over £9,568

What do I earn to not file a tax return?

To understand this, you need to know about the Personal Allowance. The Personal Allowance is the tax-free portion of your income. Everyone who earns less than £100,000 per year is entitled to the full Personal Allowance. In the 2021/22 tax year, this is the first £12,570 of your income. When you earn less than this per year, you won’t pay Income Tax on your earnings. You will, however, pay National Insurance.

If you earn less than £12,570, you may also still need to file a tax return. This is because HMRC will still need to be aware of what you’re earning, and from what activity. So the only time that you’re exempt from doing a tax return as a self-employed person (or as someone who childminds as a side hustle) is when you earn less than £1,000 per year. 

Nanny tax for parents and guardians

As a parent or guardian, you will need to think about the employment status of your nanny. Are they your full-time/part-time employee? Or are they a self-employed minder that works for you alongside a slew of other jobs? Employment status is a really important thing to establish before you agree to work with a nanny because you could end up liable to pay tax as an employer.

What would I pay?

Here are some of the things you’d need to consider if you employ a nanny or childminder to work in your home:

  • Holiday pay
  • Statutory sick pay
  • Maternity pay
  • Redundancy
  • Workplace pension
  • PAYE taxes

How do I know my nanny’s employment status?

In short, you should determine this before you start working together. Of course, these are two extremes and most cases will fall somewhere in between, but this is what you should initially think about 👇

Self-employed nanny

Your nanny works with you as and when – say once every few weeks – and can accept or decline work as they please

Employed nanny

Your nanny either works 40 hours a week full-time or 20 hours part-time, on a fixed-term basis. You decide when and how they work, and they request time off

OK, I’m an employer. What next?

Here’s what you need to do:

  1. Check your nanny has the right to work in the UK
  2. Get employer’s liability insurance
  3. Register as an employee
  4. Set up payroll
  5. Pay statutory benefits (e.g. sick pay etc.)
  6. Deduct and pay Income Tax and National Insurance

You’ll also need to get an employment contract for your nanny to sign before they start working for you. To read more about what you should do, head over to HMRC for their guidance on employing someone to work in your house.

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