The following information was kindly provided by Nannytax

Legal Responsibilities
If you employ a nanny in the UK and you pay him/her more than £91 per week (tax year 2004/2005) the law requires you to:

· Register as an employer with the Inland Revenue
· Keep a payroll record and provide payslips on his/her behalf
· Pay Employee's income tax and National Insurance Contributions
· Pay Employer's National Insurance Contributions
· Provide an annual summary of all these deductions and payments

These obligations also apply:

· If your nanny earns less than £79 per week in your employment but more than £91 in total (e.g. if she has two part-time jobs)
· In short-term employment (i.e. a week or longer)
· To any employment taking place in the UK - irrespective of the country of origin of the nanny or employer

As an employer you are also responsible for paying Statutory Sick Pay and Maternity Pay - but the latter may be reclaimed in full from the state.

Remember that National Insurance Contributions go towards your employee's entitlement to unemployment and state pension benefits. Nannies are increasingly aware of their rights as employees, and an employer who takes care of their nanny's PAYE properly will be considered a good employer in this respect and enjoy the increased confidence of their nanny.

Net or Gross Wage
When nannies and nanny agencies agree a salary with the parents they often talk about the net wage - the amount the nanny has in her hand at the end of the week. But in reality the nanny is always paid a gross wage (net wage + tax + NIC), and on top of the gross wage the parents are obliged to pay employer's NIC. Therefore there is a considerable difference between the net wage and the true cost of employing a nanny. Parents are advised to find out the true cost before agreeing on a net wage.

Penalties
Failure to register as an employer if you are paying your nanny above the weekly threshold is an offence, which can potentially lead to heavy penalties and career-damaging publicity.

Consider the following:

· Failure to file employer's annual returns by 19 May can result in penalties of £100   per month   filed late.
· Failure to pay all tax/NI liabilities before 19 April results in interest being charged on   the amount outstanding

Self-employment
With few exceptions (maternity nurses and nannies in continuous temporary employment), nannies simply do not meet the Inland Revenue criteria for self-employment.
Remember if liability to pay tax is not declared to the Inland Revenue and it comes to light, it is you, the employer who will be pursued for payment, not your nanny.

National Minimum Wage (NMW)
The current NMW is:

· £3.80 per hour (gross) for employees aged 18-21 (increasing to £4.10 on October 1   2004).
· £4.50 per hour (gross) for employees aged 22 and over (increasing to £4.85 on October 1 2004).

Nannies who live as part of the family household are exempt from NMW.

How to get started
Becoming an employer for the first time can be a source of great concern. If you do not have a working knowledge of the tax system the responsibilities and legal obligations involved can be both time-consuming and complex. Fortunately inexpensive, friendly, professional help is at hand. Nannytax is the UK's original and leading payroll service for employers of nannies and other domestic staff. Nannytax offers a complete support service to parents and will not only take care of all your payroll responsibilities for you but will also guide you through any legal issues that may arise.

Businesses use skilled payroll, legal and human resources professionals. You can too - at a fraction of the price by contacting Nannytax (currently £250 including VAT for an annual subscription). Alternatively you can do it yourself by contacting your local tax office. Or you can use an accountant to run your PAYE scheme for you - but this will certainly cost a lot more.

Nannytax - the service that costs you nothing
The Inland Revenue introduced a series of incentive payments, worth £825 in total over the next five years, in order to encourage small employers (with fewer than 50 employees) to file their PAYE returns electronically. Nannytax has worked closely with the Inland Revenue on this and was the first payroll company to file our clients' year-end returns this way. If you employ a nanny during this tax year (which ends in April 2005) and you pay tax or NI on her behalf you will automatically qualify for the £250 rebate offered by the Inland Revenue, which means that the Nannytax service is effectively free. Our payroll team is managed by Helen Harvey, who holds the prestigious title of IPPM Manager of the Year 2004 for all her work with the Inland Revenue. Your nanny's payroll could not be in better hands.

To go to Nannytax click here - please tell them where you heard about their service!