Families who pay cash-in-hand wages to a nanny are facing a crackdown by HM Revenue & Customs, which intends to target the thousands of affluent households who are employing childcarers without paying tax.

The move, amid broader measures to tackle tax evasion and fraud, comes in the same week that more than 800,000 higher earning families found out they will lose child benefits of at least £1,000 a year as part of changes announced in the Budget.

There are more than 30,000 nannies working in England alone, according to the most recent government estimate in a 2009 study. A fifth of nannies surveyed in that report said they worked without tax or national insurance payments. That implies evasion costs the Treasury £57m, although childcare professionals believe the true cost could be higher due to the unregulated nature of the industry.

HMRC said: “We expect to catch more parents who are avoiding PAYE [tax] in the next year. It’s not particularly hard to find them. When a nanny leaves and starts a new job, it often becomes clear that previous payments have not been made.”

The maximum penalty for families caught breaking the law is a repayment of all missed tax plus a 100 per cent fine.

Individuals that the Revenue believes already know the rules, such as accountants or barristers, also risk a criminal prosecution. New rules from next year will require parents to contact HMRC every time they pay their nanny, rather than once each quarter.

A Financial Times investigation has found evidence that many working parents attempt to trim childcare costs by paying a portion of a nanny’s income through the books and illegally topping it up with cash payments. Other practices include sharing nannies, or – in one extreme case – giving the nanny free accommodation in a caravan at the bottom of the garden.

Rachel, a 37-year-old solicitor, confessed to paying her nanny in cash and said she knew lots of friends paying for childcare and ending up with less than £200 of their take-home pay. “We work full time, pay nearly as much in childcare as we earn, but can’t afford to be unemployed,” she said.

British parents shoulder some of the highest childcare costs in the world. The average gross salary of a full time live-in nanny in central London is £27,000, which includes £9,500 in tax and national insurance contributions, according to accountancy firm Nannytax. Because a nanny’s gross wages are paid out of the parents’ after-tax income, this effective double taxation means one parent needs to earn £37,000 a year just to cover the cost of the nanny.

“The amount I pay my nanny in tax, national insurance and wages out of my post-tax wage is equivalent to the full-time salary of my husband, who is head of department at a state secondary school,” said Jenny, a City professional. “That is my reward for creating full-time employment.”

Accountants say many families wrongly assume nannies are self employed and pay their own taxes, but many are knowingly evading tax.

“We get calls almost daily from nannies who leave a job only to find that their employer has not paid tax and national insurance for them. It is a real black hole,” said Trisha Pritchard at Voice, the union for education professionals .“It’s not just the rich and famous who use nannies, a lot of parents use them because they are flexible and will look after a child in the parent’s own home, so it’s good for shift workers who cannot use nurseries.”

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