Employing a nanny: payroll and tax

A family that hires a nanny directly, rather than through an agency, is usually the employer and must run payroll: register with HMRC, deduct Income Tax and National Insurance, pay employer’s Class 1 contributions, give payslips and enrol the nanny in a workplace pension if they qualify. Household employers cannot use the Employment Allowance against a nanny’s National Insurance. In a nanny share each family is normally a separate employer with its own payroll.

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Is the family really the employer?

GOV.UK’s guidance on employing someone to work in your home says you are usually the employer of a nanny, housekeeper, gardener or anyone else working in your home if you hire them and they are not self employed or paid through an agency. The same page states plainly that you cannot ask your employee to become self employed. A nanny who works set hours in the family home under the parents’ direction is very unlikely to be self employed, and HMRC’s guidance on new employees warns that getting status wrong can mean extra tax, National Insurance, interest and a penalty.

Registration with Ofsted is a separate question. In England a nanny does not have to register, but GOV.UK says a nanny can choose to join the voluntary part of the Childcare Register, which helps parents qualify for help with childcare costs. A nanny can look after children from one or two families at any one time in one of those families’ homes; looking after children from more than two families at once requires registration as a childminder.

When does a household employer have to run PAYE?

HMRC’s PAYE guidance says an employer must register if, in the current tax year, an employee is paid £96 or more a week, gets expenses or benefits, gets a pension, has had another job, or has received Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit. Most nannies cross the £96 line quickly. Registration must happen before the first payday and cannot be more than two months before you start paying people. The steps are covered in registering as an employer.

The family then runs payroll each payday, either with payroll software or by paying a payroll provider. GOV.UK is clear that the employer remains legally responsible for all PAYE tasks even when someone else runs the payroll. Payroll reports go to HMRC on or before each payday through the full payment submission, and the tax and National Insurance are usually paid to HMRC monthly. A small employer expecting to pay less than £1,500 a month can ask to pay quarterly.

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What tax and National Insurance are due for 2026 to 2027?

HMRC’s rates and thresholds for employers for 2026 to 2027 set out the figures most nanny payrolls use:

Item	2026 to 2027
Personal allowance (code 1257L)	£12,570 a year
Lower earnings limit	£129 a week, £6,708 a year
Primary threshold (employee NI starts)	£242 a week, £12,570 a year
Secondary threshold (employer NI starts)	£96 a week, £5,000 a year
Employee NI, category A	8% to £50,270, then 2%
Employer NI, category A	15% above the secondary threshold

The Employment Allowance, worth up to £10,500 a year, cannot be claimed against these costs. GOV.UK lists someone employed for personal, household or domestic work, such as a nanny or gardener, as an employee you cannot include, and section 2(3) of the National Insurance Contributions Act 2014 treats those liabilities as excluded. The one exception, explained in NIM06520, is a worker employed solely to care for someone who needs care because of age, disability or similar reasons; a nanny employed to look after healthy children does not qualify. See the Employment Allowance explained.

Does the nanny need a pension?

Yes, if they qualify. GOV.UK says workplace pension duties start on the day your first member of staff starts work, and you are usually an employer for this purpose if you deduct tax and National Insurance. You must enrol and make an employer contribution for staff aged between 22 and State Pension age who earn at least £10,000 a year and normally work in the UK. The Pensions Regulator’s thresholds for 2026 to 2027 keep the trigger at £10,000 and qualifying earnings between £6,240 and £50,270. The legal minimum is 3% from the employer and 8% in total. More detail is in automatic enrolment employer duties.

What else must a household employer provide?

A written contract, and payslips on or before payday showing pay before and after deductions and any variable deductions such as tax and National Insurance. See P60, P45 and payslips.
At least the National Minimum Wage. From 1 April 2026 the rate for workers aged 21 and over is £12.71 an hour.
Paid holiday of at least 5.6 weeks a year, which is 28 days for someone working five days a week.
Statutory payments such as Statutory Sick Pay and Statutory Maternity Pay where the nanny qualifies. For 2026 to 2027 an employer whose total Class 1 National Insurance for the previous tax year was £45,000 or less recovers 109% of statutory parental payments, which covers almost every household employer.
A right to work check before employment starts.

Parents who use Tax Free Childcare need a nanny who is registered as approved childcare. GOV.UK says a family employing a nanny and eligible for Tax Free Childcare can use the childcare account to pay the nanny’s Income Tax and National Insurance.

How does a nanny share work for payroll?

Where two families share one nanny and each pays for its own share of the hours, each family normally hires the nanny and so each is an employer in its own right. Each needs its own PAYE registration, payroll, payslips and pension assessment. HMRC’s National Insurance Manual (NIM10003) explains that where someone is employed by different employers at the same time and each pays them, contributions for each employment are normally calculated separately. Aggregation is required only in the cases set out in regulation 15 of the Social Security (Contributions) Regulations 2001, chiefly where the employers carry on business in association with each other (NIM10004). That test is aimed at businesses that share premises, staff or customers.

Income Tax works differently because the personal allowance is given only once. HMRC decides the nanny’s tax codes; a second job commonly receives code BR, which GOV.UK describes as taxing all income from that job at the basic rate and usually used where someone has more than one job. Each family should apply whatever code HMRC issues. For more on codes see PAYE tax codes.

Worked example: one family and a nanny share

Illustration only, using 2026 to 2027 rates and assuming category A, code 1257L and a nanny aged over 22.

One family pays a nanny £30,000 a year gross. Employee National Insurance is (£30,000 minus £12,570) at 8%, which is £1,394.40. Employer National Insurance is (£30,000 minus £5,000) at 15%, which is £3,750. Income Tax is (£30,000 minus £12,570) at 20%, which is £3,486. The minimum employer pension contribution is 3% of (£30,000 minus £6,240), which is £712.80. The family’s cost is about £34,463 before any payroll provider fee, with no Employment Allowance.

In a share, two families each pay £15,000 for half the hours. Each family pays employer National Insurance of (£15,000 minus £5,000) at 15%, which is £1,500, so £3,000 in total rather than £3,750. Each job also has its own primary threshold, so employee National Insurance is £194.40 in each job. Each £15,000 is above the £10,000 pension trigger, so each family must enrol the nanny and pay at least 3% of (£15,000 minus £6,240), which is £262.80.

What are the common mistakes?

Agreeing a net weekly figure without recording the gross pay. The employer then absorbs every change in tax code or rates. A contract stated in gross terms avoids this.
Paying cash without payroll. GOV.UK says payroll is required even if you pay the employee in cash.
Assuming the Employment Allowance will cover employer’s National Insurance.
In a share, one family paying the whole salary and recharging the other without agreeing who the employer is.
Forgetting that pension duties begin on the nanny’s first day, not when the first contribution is due.
Not keeping payroll records. GOV.UK says they must be kept for three years from the end of the tax year, and HMRC may charge a penalty of up to £3,000 if records are incomplete.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.