Childminder v Nanny Tax
On the face of it you might expect childminders and nannies to be taxed similarly but HMRC make a clear distinction between them.
A nanny is normally employed to work at a family’s household to look after that family’s children while a childminder will look after children, often from a number of families, at their own place of work (often their own home).
A nanny is therefore employed by the family and generally needs to have PAYE and National Insurance Contributions (NIC’s) deducted by the family from their pay.
A childminder however is self-employed.
It is very difficult for a nanny to pass the self-employment tests where for example they would have to be able to employ another nanny to take their place and to manage their own work and time for a fixed fee.
However, there are some exceptions where HMRC might grant a nanny self-employed status. For example when a nanny works for 3 or 4 families at the same time or where the nanny takes short term temporary roles. It is important where a nanny says they are self-employed that the family employing them check the status with HMRC. The nanny would be required to register as a childminder with Ofsted and as self-employed with HMRC.
The responsibilities of the family are set-out by HMRC and include having a contract of employment, issuing payslips, paying statutory entitlements like maternity and sick pay, paid holidays and pension entitlement.
The family must register as an employer, have employers liability insurance and check if the person they employ is allowed to be employed in the UK.
There are also rules governing the reimbursement of mileage costs.
Importantly it is an offence to employ nannies and pay them less than the National Minimum Wage.
More information is available at: https://www.gov.uk/au-pairs-employment-law/nannies
Often this is daunting and companies such as Cloud Accountant can take care of these obligations for you.
Childminders have to register with HMRC as self–employed online via https://www.gov.uk/set-up-sole-trader/register or by downloading From CWF1: https://www.gov.uk/government/publications/self-assessment-and-national-insurance-contributions-register-if-youre-a-self-employed-sole-trader-cwf1
You need to record all income and expenses for inclusion in your annual tax return.
Household expenses (heating, rent, council tax), food and drink, wear and tear of furniture, car &travel costs, toys etc. There are clear HMRC rules about what expenses a Childminder can deduct when calculating their taxable income: http://www.hmrc.gov.uk/manuals/bimmanual/bim52751.htm
Grants may be available to childminders setting-up a new business.
Au-pairs have a different set of rules and aren’t normally treated as a worker or employee. They aren’t entitled to the National Minimum Wage. Instead they receive a nominal pocket money of between £70 to £85 per week.
There are a number of qualifying conditions setting out that an au-paid has to be part of a cultural exchange programme from another EU member country.
Full details are here: https://www.gov.uk/au-pairs-employment-law/au-pairs
If you are considering using the services of a nanny or a childminder worried about paying the correct amount of tax then please call Cloud Accountant for a free initial consultation on 0808 281 0303 or email: firstname.lastname@example.org