Two's company

Articles in the financial pages of the Sunday Times and the Observer newspapers this month and last suggested that parents could save themselves two or three thousand pounds a year by setting their nanny up as a private limited company, making her the company director and having her bill them for her services. But Stephen Vahrman, proprietor of Nannytax, says he has not been besieged by callers wanting to set up such a scheme - because it would be a scam. He says it would save employers money only by disadvantaging their nanny. Nannies require payslip evidence of their income based on PAYE for many things in life including renting a flat, arranging a mortgage or taking out a personal loan - not possible in a scheme where a nanny depends on receiving company dividends as her income. There would also be much more paperwork and accountants' fees for both nanny and employer. And, says Mr Vahrman, the Inland Revenue would soon close such a loophole if many people were found using it, setting up a 'service company' for a purpose for which it was never intended. Newspapers, he says, 'would be better advised to lobby the Government for tax relief on private childcare costs rather than proposing dodgy schemes to circumvent the costs of PAYE employment.' What about that childcare tax credit you've heard about? That allowance, as part of the Working Families Tax Credit, only applies to registered childcarers such as childminders and day nurseries. And nannies, as we all know, cannot be registered - which could be why the Government makes them such a huge exception to its tax rules, saving itself quite a few bob in allowances to parents.