Nanny Tax: What a UK Family Owes When They Employ Someone at Home

A family that employs a nanny in its own home is an employer in the full legal sense, and the obligations start before the first payday rather than at the end of the year. In practice that means registering with HMRC for PAYE if the nanny is paid £96 or more a week, deducting income tax and employee National Insurance from her wages, paying employer National Insurance at 15% on everything above £5,000 a year on top of the wage, and enrolling her in a workplace pension if she qualifies. The Employment Allowance, which would normally wipe out a small employer's National Insurance bill, is not available to you.

That last point is the one most families are told wrongly, and it is the most expensive. This guide walks through what the phrase "nanny tax" actually covers, when registration bites, what leaves the nanny's pay, what the family pays on top, where the boundary sits between a household employer and a business employer, and the errors that cost real money. A gross-to-net nanny calculator will follow and be linked from this page.

"Nanny Tax" Is Not a Tax

There is no statute called the nanny tax and no box on a form with that name. The phrase is shorthand, and it has stuck because it describes a real and slightly surreal moment: an ordinary household discovers it has become a payroll operator.

Strip the label away and what sits underneath is the standard UK employment tax machinery, applied to a family instead of a business:

• PAYE. A registered scheme with HMRC, an employer PAYE reference, and a Full Payment Submission filed on or before every payday.
• Income tax. Deducted from the nanny's wages under her tax code and paid over to HMRC.
• Employee National Insurance. Class 1 primary contributions, deducted from her wages.
• Employer National Insurance. Class 1 secondary contributions, paid by the family on top of the wage. This is not deducted from the nanny, it is an additional cost to the household.
• Pension auto-enrolment. Assessment, enrolment if she qualifies, employer contributions, and a declaration of compliance.
• Employment rights. A written statement of particulars, holiday, statutory sick pay and statutory maternity pay exposure, and notice.

What makes the household case different is not the machinery. It is that the household has no trade, so there is nothing to deduct the cost against, and it is barred from the one relief that makes small-employer National Insurance bearable. Those two facts run through everything below.

You Are the Employer, and You Cannot Choose Otherwise

The single most common attempt to avoid all of this is to agree with the nanny that she will be self-employed, invoice the family, and sort out her own tax. It is popular because it looks like it solves the problem for both sides. It does not work.

gov.uk states it flatly on its guidance for people employing someone to work in their home: you cannot ask your employee to become self-employed. The same guidance says the household must set up and run payroll, or pay someone else to do it, even if you pay the employee in cash, and must deduct and pay the employee's income tax and National Insurance.

Employment status is not a matter of agreement. It is decided on the facts of the working relationship, using the ordinary case-law tests that HMRC applies to every worker. Look at a typical nanny arrangement against those tests:

• Control. The family sets the hours, the days, the routine and what the nanny does during them.
• Personal service. The family hired this person. She cannot send a substitute of her choosing to look after the children.
• Equipment and premises. The work happens in the family's home, with the family's car, pram, kitchen and toys.
• Financial risk. The nanny cannot make a loss on the engagement. She is paid for her time whether the week goes well or badly.
• Integration. She is not running a business that serves many customers. She works for this household.

That is an employment on every limb. HMRC's Check Employment Status for Tax tool exists if you want HMRC's own answer on a specific arrangement, and HMRC stands behind the result where the input is accurate.

There is a genuinely different arrangement that families sometimes confuse with this one. A registered childminder who works from her own premises, sets her own terms, and looks after children from several families is running her own business and is self-employed. If you are the carer rather than the employer, our guide for childminders and their own self-employment is the other side of the relationship. The distinction is where the work happens and who carries the business risk, not what the contract calls it.

Getting this wrong is not a neutral risk. If HMRC reclassifies a "self-employed" nanny as an employee, the family owes the PAYE and both sides of National Insurance that should have been operated, with interest and penalties, and the nanny may have a claim to employment rights she was told she did not have.

When You Must Register for PAYE: the £96 a Week Trigger

This is the second thing families are commonly told wrongly, and the error is subtle enough to survive in circulation for years.

gov.uk's PAYE and payroll for employers guidance sets out the registration trigger. You must register for PAYE if any of the following applies to an employee in the current tax year:

• They are paid £96 or more a week
• They get expenses and company benefits
• They are getting a pension
• They have had another job
• They have received Jobseeker's Allowance, Employment and Support Allowance or Incapacity Benefit

Note that this is a list of alternatives. A nanny paid £70 a week who also works two days at a nursery has had another job, and the family is inside the rules on that ground alone, regardless of how small the wage is.

Why £96 and Not £129

The £96 a week figure is the secondary threshold, the point at which employer National Insurance starts. Annually it is £5,000, and monthly £417.

Almost every summary of nanny tax you will read online says instead: "register once your nanny earns the Lower Earnings Limit". The Lower Earnings Limit for 2026/27 is £129 a week, £559 a month, £6,708 a year. It is a different number doing a different job. The LEL is the point at which the nanny's earnings start to count towards her State Pension and contributory benefit entitlement, even though no contributions are actually deducted at that level.

Both figures exist in 2026/27. They are close enough to look interchangeable and they are not. On the page HMRC publishes today, the registration trigger is £96 a week. Use that one, and do not call it the LEL.

Timing and Records

Register before the first payday. You cannot register more than 2 months before you start paying someone, so there is a window rather than an open invitation to get ahead. HMRC issues an employer PAYE reference and an Accounts Office reference by post after the online registration, and you need both to file and to pay. The mechanics of the registration itself, screen by screen, are covered in our guide to registering for PAYE as a UK employer.

One line that families miss: if you do not need to register, you still need to keep payroll records. A nanny under every trigger does not put the household outside record-keeping, only outside the scheme.

What Comes Out of the Nanny's Pay, and What the Family Pays on Top

Two separate cash flows run out of the same arrangement, and conflating them is how families end up surprised by the bill.

Out of the nanny's gross pay come income tax under her tax code and employee Class 1 National Insurance. For 2026/27, employee National Insurance is 8% of earnings between the primary threshold (£242 a week, £12,570 a year) and the Upper Earnings Limit, then 2% above that. Income tax follows her personal allowance and the ordinary rate bands. Both reduce what she takes home. Neither costs the family anything beyond the gross wage, because the family is only passing on money it already agreed to pay.

On top of the gross pay sits employer secondary Class 1 National Insurance at 15% of everything above the secondary threshold of £5,000 a year, £417 a month or £96 a week. This is new money leaving the household. It is not deducted from the nanny and it cannot be, and it is the figure families most often leave out of the budget when they agree a wage.

Add the employer pension contribution, holiday pay, statutory sick and maternity exposure and the cost of running the payroll itself, and the loaded cost of the arrangement sits meaningfully above the headline wage. Budget from the loaded figure, not the wage.

The Boundary: Who Gets the Employment Allowance and Who Does Not

The Employment Allowance lets an eligible employer reduce its employer National Insurance bill by up to £10,500 a year. For a small business, that usually means employer National Insurance disappears entirely. It is the single most valuable thing a small employer has.

Section 2(3) of the National Insurance Contributions Act 2014 says that secondary Class 1 liabilities are excluded liabilities where they are incurred in respect of an employed earner who is employed, wholly or partly, for purposes connected with the employer's personal, family or household affairs. Excluded liabilities cannot be relieved by the allowance. A nanny is employed for purposes connected with the family's household affairs, so the liability is excluded and the allowance is unavailable.

The line is not between big and small, or between company and individual. It is between a business employment and a household employment. Here is where real situations fall:

Employment Allowance available	Excluded liability, the family pays employer NIC in full
A cafe owner employing a kitchen assistant. An ordinary business employment, ordinary secondary Class 1.	A family employing a nanny for two healthy children. Household affairs, excluded by s.2(3).
A salon employing a junior stylist, whatever the salon's size.	A household employing a cleaner or a housekeeper. Same exclusion, same reason.
A garage employing a second mechanic.	A household employing a gardener or a chauffeur. NIM06520 extends the exclusion to both by name.
A family employing a live-in carer whose duties are wholly caring for a disabled or elderly relative. The s.2(3A) carve-out applies and the allowance can be claimed.	A nanny who cares for a relative needing care and also looks after a healthy sibling. Not all duties fall in the carve-out, so the exclusion stands.

The bottom row is the whole point of the table. The carve-out is not "some caring work involved". It requires all the personal, family or household duties to be performed for the person who needs care.

The Employment Allowance Trap, and the One Narrow Exception

Plenty of nanny payroll marketing tells families they can set the £10,500 Employment Allowance against their nanny National Insurance. For an ordinary nanny employment that is wrong, and the consequence is a four-figure sum the family did not budget for.

The statutory position, in order:

1. NICA 2014 s.2(3) makes secondary Class 1 liabilities excluded liabilities where the employee is employed, wholly or partly, for purposes connected with the employer's personal, family or household affairs. Read the section.
2. NICA 2014 s.2(3A), inserted with effect from 6 April 2015, disapplies that exclusion where all the duties relating to the employer's personal, family or household affairs are performed for an individual who needs care by reason of old age, disability, past or present drug or alcohol dependence, past or present illness, or past or present mental disorder.
3. HMRC's National Insurance Manual, NIM06520 applies it in terms: the Employment Allowance cannot be claimed by someone employing a nanny, unless the nanny is employed solely to care for an individual who needs care for one of those reasons. The manual extends the same restriction to gardeners and chauffeurs. Read NIM06520.

So the exception is real but narrow. A family employing a carer whose entire role is looking after an elderly parent with dementia can claim the allowance, and can keep claiming it for as long as that person needs the care. A family employing a nanny for healthy children cannot, and no wording in the contract changes that.

Gross or Net: Why a Net Wage Shifts Every Tax Change onto the Family

Nanny wages are often discussed in net terms, because that is the number the nanny cares about. Agreeing the wage in net terms is a different thing, and it is a decision with a long tail.

If you agree a gross wage, the wage is fixed and the deductions fall where they fall. If the nanny's tax code changes, her take-home changes. Your cost does not.

If you agree a net wage, you have promised a take-home figure and undertaken to fund whatever gross is needed to produce it. That means the family absorbs:

• Changes to income tax rates, thresholds and the personal allowance.
• Changes to the nanny's tax code, including codes adjusted to collect an underpayment from a previous employer, which the family then effectively pays.
• A second job elsewhere that moves her onto a BR code, which can raise the gross needed sharply.
• Student loan and postgraduate loan deductions.
• The employer National Insurance on the grossed-up figure, which rises with it.

None of that is theoretical. A tax code change the family had no part in can add hundreds of pounds a year to a net-agreed arrangement. Agree gross, state it in the written statement of particulars, and if the nanny wants to know her take-home, show her the calculation rather than guaranteeing the outcome.

Pension Auto-Enrolment for a Household Employer

Auto-enrolment under the Pensions Act 2008 applies to household employers. There is no domestic exemption, and it catches families who had no idea they were in scope.

The duties in outline: assess the nanny on age and earnings when she starts, enrol her into a qualifying scheme if she meets the criteria, deduct her contributions and pay the employer contribution, give her the statutory communications about her right to opt in or opt out, complete a declaration of compliance with The Pensions Regulator, and re-enrol roughly every three years. A nanny who does not meet the criteria may still have a right to ask to join, so the assessment is not optional even when the answer turns out to be no.

The earnings trigger and the qualifying earnings band are uprated from time to time. For 2025/26 the trigger was £10,000 with a qualifying earnings band of £6,240 to £50,270, a minimum total contribution of 8% of qualifying earnings and a minimum employer share of 3%. Check the figures for the current year on The Pensions Regulator's employer pages before you assess, rather than working from a figure you read somewhere.

The employer contribution is real cash on top of wage and National Insurance. Put it in the budget at the start.

Worked Examples

Example One: a Full-Time Nanny on £600 a Week

A family employs a nanny for two healthy children at £600 a week gross, which is £31,200 over a full year.

Employer National Insurance. The secondary threshold is £96 a week. Earnings above it are £600 minus £96, which is £504. At 15%, that is £75.60 a week. Over a full year, on the annual figures, earnings above the £5,000 annual secondary threshold are £26,200, and 15% of that is £3,930.

Employment Allowance. None. The liability is an excluded liability under NICA 2014 s.2(3), so the whole £3,930 is paid. Had this been a business employment, the £10,500 allowance would have covered it in full and the family's National Insurance cost would have been nil. The cash difference between the two treatments is the entire £3,930 a year. That is the number the incorrect marketing quietly removes from a family's budget.

Out of the nanny's pay. Employee National Insurance at 8% applies above the primary threshold of £242 a week: £600 minus £242 is £358, and 8% of that is £28.64 a week. On the annual figures, £31,200 minus £12,570 is £18,630, and 8% is £1,490.40 a year. Income tax on a standard personal allowance runs at 20% on the same £18,630, which is £3,726 a year, around £71.65 a week. Actual deductions follow the nanny's own tax code.

What it costs the household. £600 a week in wages plus £75.60 in employer National Insurance is £675.60 a week before pension contributions, holiday cover and payroll running costs. On the wage alone, the family has understated its cost by nearly £4,000 a year.

Example Two: a Part-Time Nanny at £90 a Week, Then at £110

A family employs an after-school nanny for £90 a week. She has no other job, receives no expenses or benefits, is not drawing a pension and has not claimed Jobseeker's Allowance, Employment and Support Allowance or Incapacity Benefit.

At £90 a week: none of the five registration triggers applies, so the family does not have to register for PAYE. It must still keep payroll records of what was paid and when. Because £90 is below the Lower Earnings Limit of £129 a week, these earnings do not build the nanny any State Pension entitlement either, which is worth telling her.

At £110 a week: the pay now exceeds £96, so the family must register for PAYE before the next payday. Employer National Insurance is 15% of £110 minus £96, which is 15% of £14, or £2.10 a week, about £109 a year. There is no employee National Insurance, because £110 is below the £242 primary threshold, and no income tax if the nanny's personal allowance is fully available against this job. The total tax cost is small. The obligation is not: registration, RTI filing on or before every payday, and an auto-enrolment assessment all arrive together.

The lesson is that the trigger is about the scheme, not the size of the bill. A £14 a week rise can bring the whole compliance apparatus into a household.

Example Three: the Carve-Out, in Cash

A family employs a live-in carer at £400 a week, £20,800 a year, whose duties are wholly caring for an elderly parent who needs care by reason of old age. Employer National Insurance would be 15% of £15,800, which is £2,370. Because all the household duties are performed for the person needing care, s.2(3A) disapplies the exclusion, the Employment Allowance is available, and that £2,370 is covered in full.

Change one fact. The same carer also does the school run for a healthy grandchild. Not all the duties are now performed for the person needing care, the carve-out fails, and the £2,370 comes back onto the family. That is how narrow the exception is.

What People Get Wrong

1. Claiming the Employment Allowance. The biggest and most expensive error, and it is repeated in the marketing of firms that should know better. NICA 2014 s.2(3) excludes the liability, NIM06520 says so in terms for nannies, and on a full-time wage the mistake is worth thousands of pounds a year. If a payroll provider's website tells you your household can claim £10,500, that is a reason to doubt the rest of the page.

2. Using the LEL as the registration trigger. gov.uk says £96 a week. The Lower Earnings Limit is £129 a week for 2026/27 and does something else entirely. A family relying on £129 will register late.

3. Agreeing the nanny is self-employed. gov.uk states outright that you cannot ask an employee working in your home to become self-employed. Agreement between the parties does not determine status, and the family, not the nanny, carries the unpaid PAYE and National Insurance when it unwinds.

4. Paying cash with no scheme. The gov.uk guidance addresses this specifically: the household must run payroll even if you pay the employee in cash. Cash payment is a method, not an exemption.

5. Treating the nanny's wage as a deductible expense. It is not. A household is not carrying on a trade, so there is nothing to deduct childcare wages against. Some families reach for the family company to solve this and create a worse problem, because the company is not receiving the service. Check any such structure before it exists, not after.

6. Agreeing a net wage without understanding what was promised. A net agreement hands the family every future tax change, including the collection of the nanny's earlier underpayments through her tax code.

7. Forgetting auto-enrolment entirely. Households do not think of themselves as employers, so the pension duties and the declaration of compliance get missed. The Pensions Regulator does not treat a family differently from a business.

8. Ignoring statutory pay exposure. Statutory sick pay, statutory maternity pay and holiday pay all sit with the household as employer. The rates change and are not reproduced here; check the current figures on gov.uk. The point for budgeting is that the exposure exists and belongs to the family.

9. Missing RTI deadlines. A Full Payment Submission is due on or before every payday, not monthly in arrears when it suits. Late filing penalties start at £100 a month for a scheme with 1 to 9 employees.

10. Assuming employers liability insurance is automatic. Check the household policy in writing. Many families discover the gap only when they need the cover.

If You Have Already Been Paying a Nanny Off the Books

Register now. HMRC will backdate the scheme to when it should have started, and late Full Payment Submissions will be needed for the periods missed, with income tax and both sides of National Insurance falling due. Late filing penalties apply. None of that improves with time, and the disclosure is materially easier to handle before HMRC raises it than after.

One sentence of practical advice that does not need a statute behind it: work out the gross wage that produces what the nanny has actually been receiving before you talk to her about it, because the conversation is about her take-home, and going in without that number makes it harder than it needs to be.

Related Reading

• How to register for PAYE as a UK employer, for the registration process itself, the references HMRC issues and the RTI penalties.
• Payroll for one employee, for how a single-employee payroll is run in practice.
• Accountant for childminders, if you are the carer rather than the employer.

Figures in this guide are the 2026/27 employer rates and thresholds published by HMRC. Auto-enrolment figures are tagged to 2025/26 where stated and should be checked against the current year before you assess anyone.