Nursery World - Nannies urged to avoid tax

More nannies are being urged by private accountants to join a scheme designed to make them more affordable to parents.

Nannies are the only form of unregistered childcare in Britain and parents employing them are ineligible for childcare tax credits unless a nanny is already a registered childminder.

Two companies offering an alternative to the pay-as-you- earn (PAYE) arrangement are chartered accountants Nyman Lynden and the Inkberry Company, a recruitment agency. Both involve nannies setting themselves up as limited companies, in order to exploit tax breaks.

Under both schemes the nanny would become a limited company, known as a Personal Service Company. As a result, in the current tax year the nanny, as the only employee of her or his own PSC, could earn 4,615 before paying any tax or national insurance and still be entitled to main state benefits. Also, as the director and sole shareholder of the PSC, the nanny could take up to an additional 10,000 tax-free from the company, giving a tax-free total of 14,615.

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