Why finding a good nanny can be taxing

The cost of raising a child from birth to the age of 21 has now reached a staggering £200,000. Childcare accounts for £55,000 of this total, according to a survey from insurance and investment group LV=.

A nanny is the preferred childcare choice for many families, but it is also the most expensive. However, the uncertain economic climate after the credit crunch is prompting more parents to seek ways to cut the costs of childcare, leading to an increase in the number of families opting to share a nanny.

First, you need a good nanny. Finding the right person to look after your child can be a difficult undertaking and, with the reputation of the British nanny enhanced by the images of Mary Poppins and Supernanny, top nannies are being lured abroad with lucrative packages.

Iif you want the best, you need to start your search early. Nanny agencies recommend that you contact them four to six weeks before you need your nanny to start, but many parents say that if you’re not using an agency, three months is more realistic.

Some people find a nanny on the local library noticeboard. Other good places to look for nanny advertisements are local toy shops and cafés. You can also advertise online. Mumsnet (which is free of charge) or www.nannyshare.co.uk (£15 per job posting) are good places to start. If you go to a nanny agency, they will vet the nanny in advance – but it is still a good idea to carry out your own checks.

A good nanny doesn’t have to be educated – experience and a good rapport with children can count for more – but for many families a childcare qualification is essential. If you’d like your child to become musical or bilingual, high-end agencies offer nannies with childcare qualifications, musical and second language abilities. But you’ll have to pay more for this.

HM Customs & Revenue will not accept that a nanny (even a live-out or part-time one) is self-employed. So you have to become an employer. This means you are responsible for payroll, providing a pay slip and paying the nanny’s tax via PAYE. It is possible to do this yourself, but most families prefer the convenience of a payroll service.

Established 17 years ago, Nannytax (www.nannytax.co.uk) is the best-known of the payroll services. It charges £270 a year for setting up a nanny PAYE scheme, calculating the correct tax and National Insurance payments and making sure your nanny’s payslips are accurate. You also receive unlimited support and advice on all payroll- and employment-related issues. Nannytax has a very comprehensive website full of free information about employing a nanny, which makes it a great reference for parents.

A cheaper alternative is Nannypaye (www.nannypaye.co.uk), which has a similar payroll and employment advice service, but the website is not as informative as Nannytax. Nannypaye charges £169.99 a year and offers to match any other nanny tax competitors’ prices.

Nannies in London and the Home Counties have seen their salaries make a full recovery following a dip in 2008, according to a survey by Nannytax. Central London daily nannies earned an average of £32,316 in 2009, while their live-in counterparts earned £23,949. Elsewhere in the UK, however, nannies’ salaries have fallen slightly.

According to the high-end agency www.educated-nannies.co.uk, it can cost up to £500 net for a “live-in” and £600 net for a “live-out” educated nanny in London, which is a gross salary of between £743 and £906 a week, according to the Nannytax calculator.

Most nannies like to agree a net take-home pay (that doesn’t include their tax and national insurance). From the employer’s point of view, though, it is better to agree a gross wage (ie before deduction of the nanny’s tax and employee national insurance).

This means that your total costs are protected and that you would not normally be affected by any changes in legislation – nor will you run the risk of getting lumbered with any unpaid tax from your nanny’s previous employment. With a gross wage, if taxes rise, your liabilities as an employer remain the same – but your nanny would benefit from higher wages if tax falls.

If you employ a nanny, you also have to pay employer’s national insurance contributions and take out employer’s liability insurance (which may not be an extra expense if it is already included in your home insurance). Paying cash-in-hand to a nanny is illegal and, as the employer, you will be held liable if it is discovered.

Sharing a nanny has become a more popular option for budget-conscious families. This has other advantages in that the children will socialise with those from another family and may develop lasting friendships.

You can register at the Nannyshare website (www. nannyshare.co.uk) for free to see if there are other families looking for a nanny share in your area. For a subscription fee of £25 for six months you can send and receive messages from other families and post a job advertisement.

I found a family to share our nanny within four weeks of registering on the site. The share provides a playmate for my one-year- old while my four-year-old is at school and reduces our childcare bill by hundreds of pounds a month.

Moira O’Neill is personal finance editor at the Investors Chronicle

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