The average gross salary for a daily nanny in central London — one who lives outside the family home — jumped by 4% to £28,171 last year, according to Nannytax, a payroll service.
That means daily nannies in the capital are taking home £399 a week after their tax and national-insurance contributions (Nics) — more than some teachers and nurses.
If you have a spare room at home, a live-in nanny could be cheaper. They earn an average of £21,573 in central London — or a net £314 a week.
The true cost of hiring a nanny is even higher because parents must pay employer’s Nics on top of their nanny’s salary. For a nanny on £28,171, the employer’s Nics would be £2,979 — a total of £31,150.
And parents pay their nannies out of income that has already been subject to tax and national insurance. They therefore need a gross income of £43,805 to cover nanny costs of £31,150, according to Nannytax.
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However, many families do not realise that they could knock up to £2,132 off the cost of a nanny — or of childcare in general — by using the government’s childcare-vouchers scheme. Only 38% of parents who approached nanny agencies last year inquired about the scheme.
Asa Nilsdotter at the payroll firm said: “Families with nannies have been penalised by the tax system for far too long. The voucher scheme goes some way to redressing the balance, but it is not widely publicised.
“The government has focused instead on help with childcare costs through tax credits, but this is of little use to families with nannies because you need a household income of less than £59,000 to qualify. The voucher scheme, however, is open to everybody regardless of income.”
Under the scheme, working parents can escape tax and Nics on earnings of up to £50 a week — £2,600 a year — if their employer offers vouchers that are put towards the cost of government-approved childcare, including nannies.
The tax relief would be worth £1,066 to a higher-rate taxpayer and £858 at the basic rate. Both parents can claim the relief, so a family with two higher-rate taxpayers could save £2,132 (see below for more details).
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Self-employed people are not eligible and many smaller companies do not offer the scheme.
Rose Catt, 35, a partwork editor from Highgate in north London, would love to get childcare vouchers towards the cost of her nanny, but she works for a small firm. She said: “Childcare in London has become so expensive that tax breaks would be a real help, but I tend to work for smaller employers who do not even offer pensions.”
She took on her nanny, Gemma Woods, 30, after the birth of her second child, Elizabeth, 2. Her eldest, Robert, is 4.
Woods takes home about £300 net for a three to four day week, but Rose says it is worth it. “Robert was previously in a day nursery, but a nanny is more cost-effective for two children. While it is still expensive, we are happy that our children are being brought up in a secure environment by a good nanny.”
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If your company is one of the 5,500 that do offer vouchers, check if you are eligible for help through tax credits before you sign up. According to Revenue & Customs you are generally better off with tax credits if you are a basic-rate taxpayer or if your childcare costs are no more than £175 a week for one child, or £300 for two or more children.
If your childcare costs are higher, or you pay top-rate tax, you will generally be better with vouchers. For details visit hmrc.gov.uk/childcare.
Families can share nannies to cut costs. Nilsdotter said: “Nannies are expensive, but are often the most flexible option. A part-time nanny may be the solution.”
You can also save Nics if you share a nanny. Normally, a family with a full-time nanny must pay Nics on his or her salary above £94 a week. However, if two families share the cost, they both benefit from the £94-a-week exemption, so less of the nanny’s salary is subject to Nics. The saving works out at about £30 a week per family, according to Nannytax.
It is worth taking professional advice on tax and Nics because there are pitfalls. For example, only one set of parents in a nanny-share will benefit from the nanny’s personal income-tax allowance — £4,895 this tax year. The other family will therefore pay more to the Revenue and their payment to the nanny should be adjusted accordingly.
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If you are seeking another family to share your nanny, you could register your details with Sharingcare, which will match your details with other families in your area.
Other types of childcare are worth considering. The average cost of a full-time nursery place in inner London for a child under two is £197 a week, or £10,244 a year, said the Daycare Trust, a childcare charity.
However, the cost can be as high as £350 a week, or £18,200 a year, in some London boroughs, which makes nannies look good value, especially for more than one child.
The average cost of a nursery place in England is £141 a week, or £7,332 year, for a child under two. A childminder — a registered carer who will look after your children in his or her home, usually alongside others — costs an average of £127, rising to £142 in London.