Nanny Tax and Payroll, Explained
Written and reviewed by the Childcare Accountants editorial team. Last reviewed 29 July 2026.
If you employ a nanny in your home, the law treats you as an employer, with the same payroll duties as a business. It catches families out, because it does not feel like running a company, but HMRC and pension rules apply just the same.
This is what employing a nanny involves on the payroll side, and the mistake to avoid before you agree a wage.
You Are the Employer
A nanny who works in your home, on your terms, is your employee, not self-employed. That means you operate PAYE: registering as an employer, deducting income tax and National Insurance from their pay, paying employer's National Insurance, and reporting to HMRC each time you pay them.
You also have to meet the minimum wage, provide payslips, and, in most cases, set up a workplace pension and auto-enrol the nanny. None of it is optional because it is a home rather than an office.
The Gross-Versus-Net Trap
The single most expensive mistake families make is agreeing a nanny's pay as a net, take-home figure. If you agree net, you become liable for whatever tax and National Insurance sit on top, and if the nanny's tax code changes or they have other income, that cost can rise unpredictably and land on you.
Agreeing a gross wage puts the tax where it belongs and keeps your cost fixed and known. It is a small wording difference at the offer stage that saves a lot of money and argument later, and it is worth getting right before you sign anything.
How It Is Run
In practice, families run nanny payroll through a payroll service rather than doing it themselves, because the PAYE, pension and reporting are fiddly to get right every payday. Tax-Free Childcare can be used to pay a nanny where the nanny is registered, which is worth setting up.
We run nanny payroll as a proper service: registering you as an employer, operating PAYE and the pension, producing payslips, and handling the reporting, so you meet your duties without the admin. To set it up, see the nanny payroll service or get in touch.