TAX AND NATIONAL INSURANCE
Employing a nanny brings with it the same obligations as any business taking on an employee. By law, therefore the employer must account for Income Tax and National Insurance Contributions on the salary paid to a nanny or mothers help, whether they are full-time, part time or temporary. There are very few occasions where a nanny or mothers help may be classified as self-employed.

A nanny's salary is normally quoted net of deductions (i.e the amount she wishes to receive in her hand), and it is therefore the employers responsibility to pay over to the Inland Revenue, PAYE, Employees National Insurance and Employers National Insurance in addition to the net salary paid to the nanny. Expenses paid and benefits provided on behalf of a nanny in addition to her salary may be liable to a separate charge to Tax and National Insurance.

Remember, avoiding the taxman is illegal. If the Revenue catches up with an employer who has failed to declare their nanny for tax purposes or has tried to maintain that she is self-employed, then they will be liable to pay the correct Tax and National Insurance Contributions and interest and penalties. There is no legal right to seek repayment from the nanny.

SICKNESS
An employer is normally obliged to pay Statutory Sick Pay (SSP) to an employee who is sick for four or more calendar days in a row, regardless of the length of time the nanny has worked for that employer. Rates are stipulated by legislation, although any additional sick payment can be made at the discretion of the employer.

SSP is a complicated subject and each individual case needs to be looked at specifically to determine the amount of sick pay which is required to be paid to the nanny and any amount recoverable from the Inland revenue.

MATERNITY
Statutory Maternity Pay (SMP) is payable to a nanny who is employed for a period of twenty six weeks continuing into the fifteenth week before the baby is due. The amounts payable are 90% of the nanny's average weekly earnings for the first six weeks and a rate stipulated by legislation for the remaining twelve weeks.

SMP is fully recoverable by a small employer together with an additional 5% and is recovered by deducting the amounts paid from future Tax and National Insurance Contributions or by obtaining the SMP from the Inland Revenue in advance.

WORKING FAMILIES TAX CREDIT
Working Families Tax Credit (WFTC) was brought in by the government in October 1999 as a replacement to Family Credit. From April 2000 employers will be required to administer it if so directed by the Inland Revenue. This will mean that employers of nannies entitled to WFTC will be required to pay the benefit in addition to the nanny's salary. The WFTC is fully recoverable by the employer by deducting the amounts paid from future Tax and National Insurance Contributions. Failure by employers to administer WFTC properly can lead to a fine of up to £3,000.

STUDENT LOAN DEDUCTIONS
From April 2000 the Government will require employers to collect repayments of student loans through the PAYE system. Where a nanny is required to make such repayments, these will be deducted from her salary in the same way as PAYE and National Insurance and paid over to the Inland Revenue. Employers who pay their nanny a net salary need to make clear as to whether the net salary will be before or after making the student loan deduction. Failure by employers to administer the deductions properly may lead to a fine of up to £3,000.

NATIONAL MINIMUM WAGE
The national minimum wage was introduced in April 1999. Currently employers are required to pay employees aged 22 or over a minimum gross wage of £3.70 per hour. Employees between 18 and 21 must earn a minimum of £.20 per hour. For live-in nannies an allowance of up to a maximum of £19.85 per week may be deducted from the nanny's salary in determining whether she is earning above the national minimum wage.

WORKING TIME DIRECTIVE
The working Time Directive lays down the rules relating to the number of hours an employee may work, holiday requirements and breaks to be taken during work hours. All full-time employees are entitled to four weeks annual holiday (including bank holidays) after an initial period of employment of 13 weeks.

The above information has been compiled by Sara Graff ACA ATII, Principle of TAXING NANNIES. TAXING NANNIES is a payroll agency which specialises in providing a comprehensive payroll service for employers of nannies who want help in dealing with their nanny's tax affairs. Sara Graff is a chartered Accountant and a Chartered Tax Advisor. She is a mother of two young children and has employed nannies herself whilst continuing her career. She therefore has an understanding of the needs, concerns and problems that parents face when employing a nanny.

For a brochure or further information or advice write to TAXING NANNIES, 28 Minchenden Crescent, London N14 7EL, telephone 020 8882 6847 or e-mail taxing.nannies@virgin.net