Hiring a nanny is a huge relief, especially for busy healthcare professionals in the UK who work long or irregular shifts. However, after celebrating your perfect childcare match, you’ll quickly discover the world of “nanny tax” waiting for you.
Nanny tax is the system where you deduct the correct amount of tax from your nanny’s wages and pay it over to HMRC.
If you are wondering how to manage nanny payroll and taxes in the UK, you are in the right place. This comprehensive guide walks you through everything about UK nanny tax requirements for 2026
Let’s break it down!
What is Nanny Tax?
In the UK, if you hire a nanny directly, they are almost always classed as your employee. This means you can’t just hand over cash at the end of the week. You are legally required to set up a PAYE (Pay As You Earn) scheme to deduct their taxes before you pay them.
That means you’re responsible for:
- Registering as an employer with HMRC
- Running payroll correctly
- Deducting Income Tax and NICs from your nanny’s wages
- Paying the employer NICs
- Submitting reports to HMRC
Pro-Tip: Always agree on a Gross Salary with your nanny, not a Net (take-home) pay. If you agree on Net, you (the employer) become liable for any changes in their tax code. This can unexpectedly increase your total costs.
Do I Really Have to Pay Nanny Tax?
Yes. Because a nanny works in your home and follows your instructions, HMRC almost always views them as an employee rather than self-employed. Therefore, you really have to pay nanny tax.
You cannot simply ask your nanny to be self-employed to avoid these duties.
How to Hire a Nanny Legally (2026/27)
Making the hiring of a nanny legal begins with straightforward steps:
- Check Right to Work: You must verify your nanny’s legal right to work in the UK before they start.
- Agree Gross Pay: Agree on a Gross salary (not Net) to avoid unexpected tax costs. From 1 April 2026, the National Living Wage for those aged 21 and over is £12.71 per hour.
- Secure Insurance: It is a legal requirement to have Employers’ Liability Insurance in place by the time your nanny starts working.
- Issue Contract: You must provide a written statement of employment particulars on or before the nanny’s first day.
- Note: In 2026, this must also include a statement that the worker has the right to join a trade union.
- Register with HMRC: You must register as an employer to set up a PAYE scheme. This allows you to deduct tax and National Insurance correctly.
- Set up Pension: You must auto-enrol your nanny into a workplace pension if they meet these 2026/27 criteria:
- Aged between 22 and State Pension age.
- Earn more than £10,000 per year (or £192 per week / £833 per month).
Quick 2026 Check
| Requirement | Details for 2026/27 |
| Min. Wage (Age 21+) | £12.71 per hour |
| Min. Wage (Age 18–20) | £10.85 per hour |
| Pension Trigger | £10,000 per year |
| PAYE Registration | Required if paying £129+ per week |
How Do I Know If I Need to Pay Nanny Tax?
Not every babysitter triggers the need for a full payroll, but most permanent nannies do.
You must register for a nanny tax scheme if:
- You pay them more than the Lower Earnings Limit (£125 per week for 2025/26 or £129 per week for 2026/27).
- They already have another job.
- They receive a pension.
Even if they earn less than the tax threshold, you still have to keep records. You also need to register as an employer to stay on the right side of the law.
What Are My Main Nanny Tax Responsibilities?
When you step into the role of an employer, your to-do list grows a bit longer. Your primary nanny tax responsibilities include:
- HMRC Registration: You must register for a PAYE scheme before your nanny’s first payday.
- Calculating Tax and NI: Every time you pay them, you need to work out how much Income Tax and National Insurance (NI) to deduct.
- Paying Employer NI: On top of the nanny’s salary, you have to pay Employer National Insurance. For the 2025/26 and 2026/27 tax years, this is 15% on earnings above the Secondary Threshold of £5,000 per year.
- Issuing Payslips: It is a legal requirement to give your nanny a breakdown of their pay and deductions.
- Filing RTI Returns: You must report every payment to HMRC on or before the day you pay your nanny.
If I Hire a Nanny, How Do I Pay Taxes?
Paying a nanny tax involves a few key steps. Here’s how you can ensure everything is in order:
Step 1: Register as an Employer with HMRC
The very first thing you need to do is register as an employer with HMRC. You should do this even if your nanny hasn’t started yet, but no later than your first payday.
HMRC will set up a PAYE (Pay As You Earn) scheme in your name. This is the system used to collect Income Tax and National Insurance.
Step 2: Set Up Nanny Payroll
Once you have your employer credentials, you need a system to calculate the numbers. This is where you work out the gross pay, deductions, and your employer’s National Insurance costs.
Many healthcare professionals find it easier to use an end-to-end nanny payroll service because it handles the complicated maths. Also, it ensures you are following the latest tax codes sent by HMRC.
Step 3: Deduct Taxes and Pay Your Nanny
Every time you pay your nanny, you must deduct the correct amount of tax and National Insurance. For the current tax year, most people have a Personal Allowance of £12,570. It means they don’t pay Income Tax on earnings below this.
However, as an employer, you also have to pay Employer National Insurance on top of their salary.
Paying a nanny legally means giving them a payslip that clearly shows these deductions, so there is a clear paper trail for both of you.
Step 4: Report to HMRC and Provide a P60
Instead of a single “tax return,” you actually report to HMRC every time you pay your nanny through a system called Real Time Information (RTI). Then, at the end of the tax year (April 5th), you must give your nanny a P60.
P60 is an important document that proves how much nanny tax they have paid and is often needed for nannies to rent a house or apply for a mortgage.
What Nanny Taxes Do I Owe?
When you employ a nanny, you are responsible for two main types of tax: Income Tax and National Insurance.
These are deducted from the nanny’s gross pay, but you also have to pay an extra “Employer’s National Insurance” contribution on top of their salary.
1. Income Tax
The first portion of your nanny’s salary is tax-free. Anything earned above this is taxed as follows:
| Annual Income Band | Tax Rate | What This Means |
| First £12,570 | 0% | Tax-free Personal Allowance. |
| £12,571 to £50,270 | 20% | The “Basic Rate” of tax. |
| £50,271 to £125,140 | 40% | The “Higher Rate” of tax. |
| Over £125,140 | 45% | The “Additional Rate” of tax. |
2. National Insurance: The 2026/27 Rates
Both you and your nanny will contribute to National Insurance payments, but the thresholds work differently for each of you. Your nanny starts paying Employee National Insurance once their annual earnings exceed £12,570.
As their employer, however, you’ll begin paying Employer National Insurance contributions much earlier – as soon as their yearly salary goes above £5,000.
| NI Type | Threshold (Annual) | Rate | Who Pays It? |
| Secondary Threshold | £5,000 | 15% | You (The Employer) |
| Primary Threshold | £12,570 | 8% | The Nanny (Deducted by you) |
| Upper Earnings Limit | £50,270 | 2% | The Nanny (On high earnings) |
Note: Even though the nanny pays their own 8%, you are the one responsible for calculating it, deducting it from their gross pay, and sending it to HMRC.
Common Nanny Tax Mistakes to Avoid
Some of the most frequent nanny tax problems in the UK include:
- Agreeing on a net salary and forgetting how much nanny tax will cost you on top
- Paying cash without payroll records
- Not registering with HMRC in time
- Missing minimum wage rises each April
- Ignoring pension auto‑enrolment.
If any of these sound familiar, it is worth reviewing your situation and getting nanny tax advice before HMRC contacts you.
What Happens If You Ignore Nanny Tax?
Ignoring your responsibilities as an employer might seem like a quick shortcut, but “off-the-books” arrangements carry significant risks.
Here’s what you’re risking when you dodge nanny tax obligations:
- Back-dated Bills: HMRC doesn’t forget, and they can demand years’ worth of unpaid Income Tax and National Insurance all at once, complete with hefty interest charges on top.
- Financial Penalties: You’ll face fines for registering late, filing returns after deadlines, and even for not providing proper payslips to your nanny.
- Impact on Your Nanny: Without official tax records, your nanny could struggle to secure a mortgage, get approved for a car loan, or access crucial state benefits like maternity pay.
- Employment Tribunals: Without a formal payroll and contract, you are highly vulnerable to legal claims if the relationship with your nanny ends poorly.
- Professional Reputation: If you work in a regulated profession, getting caught for tax non-compliance or evasion could damage more than just your finances. It might threaten your professional standing, too.
For healthcare professionals who already have demanding roles, dealing with an HMRC investigation for an off‑the‑books nanny is the last thing you need.
Can I Use Tax-Free Childcare to Pay the Nanny Tax?
Yes! If your nanny is Ofsted-registered (in England), you can use your Tax-Free Childcare account to pay their salary and the tax. This can save you up to £2,000 per child per year.
How Does the Tax-Free Childcare Scheme Work with a Nanny?
If your nanny is Ofsted-registered in England, you can use the Tax-Free Childcare scheme. This also applies if they are registered with the equivalent bodies in Wales, Scotland, or Northern Ireland.
The process is simple. For every £8 you pay into your online childcare account, the government adds £2. You can get up to £2,000 per child each year. If your child is disabled, this limit increases to £4,000.
Do I Have to Offer a Pension to My Nanny?
Under “Automatic Enrolment” rules, you must provide a workplace pension if your nanny is aged between 22 and the State Pension age and earns more than £10,000 per year (or £192 per week).
Even if they earn less than this but more than £6,240 per year, they have a right to join a scheme if they ask. And you must contribute.
Managing nanny payroll and taxes in the UK includes staying on top of these pension contributions. It will help you avoid hefty fines from The Pensions Regulator.
Does My Nanny Really Have to Be an Employee? Can’t They Just Be Self-Employed?
This is perhaps the most searched question about the nanny tax. In the UK, it is very rare for a nanny to be considered self-employed by HMRC. This is because you (the parent) normally define the working hours of the nanny, provide all the equipment needed (house, car, food, etc.), and dictate the exact way the work is performed. Therefore, this is always classified as a relationship of employer and employee.
If you incorrectly treat them as self-employed, you could be held liable for years of unpaid nanny payroll taxes and National Insurance contributions later on.
Can I Use the Employment Allowance to Reduce My Nanny Tax Bill?
The Employment Allowance was increased to £10,500 in April 2025. It is a huge benefit for many small businesses. However, you generally cannot claim it for “personal, family, or household affairs.”
This means if you hire a Nanny to perform standard child care, then you will not be able to claim your allowance against your Employer National Insurance Contributions.
The only common exception for healthcare families is if you are employing a care worker for someone with a disability or a long-term medical condition.
What Happens if My Nanny Gets Sick?
If your nanny is unwell, you must pay them Statutory Sick Pay (SSP) starting from their very first day off. The old rule about waiting three days is changing from 6 April 2026.
As of April 2026, almost every nanny qualifies for this because the high minimum earnings limit has been removed. You will pay them either £123.25 per week or 80% of their usual weekly earnings, whichever is lower.
One important thing to remember is that you cannot get this money back from the government. You have to cover the cost of sick pay yourself.
What Happens if My Nanny Goes on Maternity Leave?
Maternity leave works differently. In this case, the government usually covers the bill.
If your nanny earns at least £129 a week, they qualify for Statutory Maternity Pay. You pay them this amount first and then reclaim it from HMRC. Most families qualify for “Small Employers’ Relief.” This means you can actually reclaim 109% of the cost.
That extra 9% is there to help you cover the cost of your employer’s National Insurance. Because of this, having a nanny on maternity leave should not leave your household budget out of pocket.
Do I Need to Provide a P60 and P45 for My Nanny?
Yes, these are essential parts of your nanny tax responsibilities. A P60 must be given to your nanny at the end of every tax year (by 31st May). It summarises their total pay and the nanny tax deductions made.
If your nanny leaves your employment, you must provide a P45. These documents are important for your nanny if they want to apply for a mortgage, rent a flat, or if they want to prove their income to the government.
If I Hire a Nanny for Just a Few Hours a Week, Do I Still Need a Payroll?
Even for a part-time nanny, you must register for a PAYE scheme if they earn more than the Lower Earnings Limit (£129 per week in 2026/27). Even if they earn less than that, you might still need to register if they have another job or receive a pension elsewhere.
If you are unsure, getting professional nanny tax advice is the best way to ensure you aren’t accidentally breaking HMRC rules.
When to Get Nanny Tax Advice
You should consider speaking to an accountant who understands HMRC nanny rules if:
- You are hiring a nanny for the first time
- Your nanny’s hours or pay are changing significantly
- You have fallen behind with the nanny tax and need to get back on track.
A short conversation with a specialist can save you a lot of stress and potentially a lot of money.
The Bottom Line
Hiring a nanny makes you an employer, and nanny tax is part of that responsibility.
It keeps your household legal and makes sure your nanny gets all the social security protections they’re entitled to in the UK. While the admin can feel heavy, once you set up a good system from the start, everything flows much more smoothly.
If you need an expert healthcare accountant, CruseBurke is here to assist you.
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How CruseBurke Can Help
At CruseBurke, we’ve made it our mission to protect the finances of those who spend their lives protecting others. Our team of specialist healthcare accountants understands the complexities of healthcare finances.
If you need help with any accounting service, such as bookkeeping, payroll, year-end accounts, or NHS Pension schemes, reach out to us today. We’d love to discuss how we can make your life easier and your practice more profitable!
Disclaimer: The information about the “What Are Nanny Taxes? 2026 Guide for UK Employers” provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.
