Parents to be hit by ‘nanny tax’ after national insurance changes

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Parents who employ nannies could see their annual childcare bills jump by more than £1,000 from April under measures announced in this week’s Budget.

The chancellor’s key tax-raising policy will see employers’ national insurance contributions increase from 13.5 per cent to 15 per cent next year, with the salary threshold at which employers pay contributions dropping from £9,100 to just £5,000.

While this move was aimed at businesses, parents who employ nannies for their childcare arrangements will also be impacted.

Jenni Bond, managing director of Nannytax, a payroll service for parents, said the extra NI charges would add more than £1,000 to the annual cost of hiring a nanny, based on the average salary of £46,228 for nannies in London.

The additional costs could be higher still, said Bond, if the number of hours the nanny was working placed their hourly income below the level of April’s new national minimum wage.

Although the chancellor extended protection to small businesses by boosting the employment allowance to enable them to offset higher payroll costs, employers of domestic staff including nannies, cleaners and gardeners are exempt from using it. The rules exclude workers who are being employed in a personal capacity to support the running of a household. 

“The cost of childcare is astronomical, and domestic employers should absolutely be included [in the employment allowance],” said Bond.

Joeli Brearley, founder of the charity Pregnant Then Screwed which campaigns for more affordable childcare, said the NI increase would “hit working parents hard, particularly mothers, who still bear the brunt of childcare costs”.

“For many, employing a nanny isn’t a luxury but a necessity to keep their careers going. With this added expense, we risk pushing more parents — especially single parents and mothers — out of the workforce.”

Bond said that increases in the minimum wage, announced on Tuesday, would also pile “on top of those increases parents would have expected”. The national living wage for over-21s will rise from £11.44 to £12.21 in April 2025.

199The number of children’s nurseries forced to close in the year to September 2024, according to the National Day Nurseries Association

The NI hit to parents with nannies comes as parents grapple with the costs of childcare after a surge in nursery closures and a push for workers to return to the office after the pandemic.

The yearly salary for nannies outside London rose by 12 per cent year-on-year to £40,326 in 2023-24, according to Nannytax’s annual salary index report.

In London, annual salaries for nannies rose by 8 per cent to £46,228.

In the year to September 2024, 199 nurseries were forced to close, according to the National Day Nurseries Association, a charity representing nurseries across the UK.

“A lot of this comes down to chronic underfunding, particularly for three and four-year-olds,” said Purnima Tanuku, chief executive of NDNA, in September.

The Treasury declined to comment.