Best friend wants to be DD's nanny

and NOT pay her tax and insurance

You also have to think about any other work she is doing. If she stays part time in the nursery, they will take up her tax free allowance so if you paid her £9 net for 16 hours you would be paying £189 per week/£822 per month as you'd be paying tax NI and employers NI on all of her wage.

If you do try to pay her cash in hand and pay her tax and insurance and you get caught, you will be liable to pay all back taxes, plus a huge fine of up to £10,000, possibly a prison sentence and you will get a criminal record, you would lose your job at the psychiatric hospital. Nannies talk! I know at least three nannies whose employers do not declare the entire wage they pay and I know at least 10 nannies who know about it, any one of us could call HMRC with the details.

I have to admit that when I was a much younger nanny (been doing it 30 years now!) I took part payment in cash until I bought my first house and my (parents) accountant told me how it's no benefit to me and more of a hinderance, if I only declared I was earning £xxx per month, I would only get a mortgage based on that. My insurance would only cover my declared earnings if I was unwell and couldn't work for some time. Etc. Now there is a bug crack down on nannies by HMRC. It's really not worth the risk.

I guess you have to set out beforehand your parenting rules, what would annoy you, if you wanted to give her notice, the notice period. I think itd probably change the dynamics of your friendship. I personally wouldnt fo it. Re cash in hand. Yeah its unlikely youd be caught. But say you did, is it worth having a criminal record over?

3 years ago DIL had exactly the same scenario as you have. Even down to getting a dog! All ended up a nasty mess, the lines were blurred between friendship and business.
If you really want this person to look after your DC then get her to register as a childminder and she looks after DC at hers. And forget the whole dog idea: you haven't really thought this through have you?

Cindy, your calculations look good.

If starting to employ someone between now and end of September 2016, pension contributions would start from 1st November 2017.
Employer contribution starts at 1% and changes to 2% from 06/04/18.
However the would not be automatically enrolled as they would be earning less than £833 per month. They would have a right to opt in, so a pension scheme would need to exist so there would be some admin involved. If they did want a pension, then you could do it as a percentage of earnings above the qualifying earnings level, so in this situation would be on around £200 of the monthly salary... so 1% being £2. From 06/04/19, contribution increases to 3%, so if still on same salary, around £6 pension contribution per month.

Can I ask why you are getting a dog for someone lese to look after? Dogs are pack animals and need someone around them during the day. I have had to turn down jobs over the years as my dog like a child comes first. I never risk walking him with a pushchair you have to consider dogs running off getting attacked or injured, 2 young untrained dogs and a baby no way let alone the idea of giving the problem to somebody who is caring educating and nurturing your child while you leave them to it.
Have you ever had a dog they are more of a commitment than a child mine now costs over £200 a month were all on holiday next week and he's at the vets right now looking like its a choice of dog or holiday so no holiday he's too ill.

I would never employ friends.

Avoid

Never work for friends or family. It will end in tears

If she is doing something you don't like, how will you handle it with her? What if you decide the arrangement isn't working for some reason, how will you end it? What if she gets a better job offer, will you be OK with it if she quits? What if she wants a pay rise? Cost of living will rise lots this year due to the pound falling so it is likely she will want a raise.

Tax authorities are clamping down hard on tax avoidance. They can get you and her many years later. Will she want to put you on her CV? Or is she going to pretend she didn't work for the time she was with you?

Well yes but surely that's something op should consider? She can't just get rid of nanny in a few months due to pension scheme costs

Isn't pension being phased in, thought it would not apply to a new employer until late next year?

You also need to contribute to a nanny pension now

I would think about how it would work with your DD being around at home more than she is now. Would you really be able to sleep with her playing downstairs? Would you be able to do uni work at home - are you able to lock yourself away in a room and get on with an assignment whilst hearing noises... it can be hard to insulate totally from noise from other rooms. Sure your nanny can take DD out and I would encourage that as much as possible but outings cost money... even a toddler group can be a couple of £. So you need to budget for outings and activities. Nursery probably includes most things.

16 hours per week @ £9 gross per hour = £144 gross per week. It is over the £112 lower limit so it needs to be reported to HMRC. No employers NI at that pay amount.

16 hours per week @ £10 gross per hour = £160 gross per week. There is 55p per week of Employers NI at that pay amount. Think it may depend on age though, as young workers are being encouraged and employers NI is reduced for some. NannyNick is better at this than me.

If you did it by bank transfer to evade the tax and employment obligations that is not going to be ok.

Why would your friend go along with it? It would mean she wouldn't be entitled to statutory maternity pay or JSA if she was out of work.

If you want to employ her that's fine. If she registers with OFSTED then the funding that is available for nursery is usually available for that. You would be her employer and liable for the employer's NI as well as deducting her tax and NI from her pay and making the payment to HMRC on her behalf. You would need to do payslips and real time reporting of her hours but you could pay a payroll company to do this. You're looking at about £2/300 a year for this. You would also need to offer and operate a pension scheme plus pay her 5.6 weeks holiday per annum, pay at least minimum wage and possibly also statutory sick pay if she earns enough from you for that to apply.

If she works for you for more than 2 years then you will also need to pay her redundancy if you decide to stop using a nanny.

Complicated isn't it?!

You wouldn't be able to pay her under the table as your childcare grant from uni will want to see invoices from your childcare provider - and they would need to be registered.

The likely hood of you being caught if you was paying her cash in hand isn't very likely, but to be honest if you can afford the initial cost of setting up her working for you I don't know if i would run the risk of paying her illegally. And i personally would not employ a friend. I've seen a few post where it hasn't ended well. Friendships broken jobs lost etc.

You expect her to look after your dog too

Yeah sounds like a great idea!

I expect people are caught paying undeclared when their employee realises they are meant to have payslips, such as if they apply for a mortgage other loan. Don't risk it. Work out the costs involved and see if it is something you can afford. I expect we can help you on here to identify likely costs.

I know somebody who paid a nanny under the table. Cash in hand every week.

They were found out and had a £14,000 fine given to cover the tax unpaid plus extra

NannyPaye has a useful factsheet about what is involved in registering a nanny with Ofsted. http://www.nannypaye.co.uk/wp-content/uploads/2016/01/Brief-Ofsted-Guide.pdf

They can help with doing the payroll, think they charge around £180 a year for monthly payslips, bit more for weekly. Don't get panicked about being an employer, that is what the payroll companies are there to help you with.

Good point about you both checking nursery contract, as they don't like staff being poached.

You do need to do the whole shebang, and have contracts and everything - I had a local accountant do it, she charged me less than £500/year.

There is also now a requirement to have a pension scheme, but I stopped employing my nanny before it came in, so I don't know what is available to help with that.

I employed a friend (DS1's schoolmate's mum - so we spoke at the gate a lot, but didn't actually hang around together away from school) - and it worked perfectly for us. She had a job that worked around her child (DS1 and her child were best mates, so no issues there), I had someone I trusted to look after my two around school.

Honestly, it was perfect, but very expensive once I'd done the pay, mileage allowances, NI etc. After 6 months I switched to a childminder, and it cost 10k less/year for more hours.

Also a nanny works at your home, if she is taking your child to her house whilst you sleep she needs to be registered as a childminder