Using tax credits for approved nannies?

Tell you what, lets do a worked example for if you had 2 children, as then the maximum claim amount is £300 per week.

WTC5 says:
Begin Quote
If you employ someone as an 'approved' home childcare provider, you can claim for up to 80% of the gross costs of employing that person as long as this is within the limits above. Include

• the costs of any employer's National Insurance contributions you pay
• the costs of any benefits in kind you give, and
• any other costs associated with employing that person. End Quote

The limit referred to is: 80% of £300 (if you have 2 or more children), thus £240.

Your total childcare cost is:
£240 gross + £18 employers NI + £45 childminder = £303.

Childcare Element of Tax Credits gives you £240, so you have £63 to pay yourself. This amount is more than the NI, so I don't feel it would be used for that, it would more likely be used to pay the childminder in full, plus then the rest on home childcarers gross pay.

How many children do you have?

Forgot to put that £176.02 - £140 is £36.02, which is more then the Employers NI of £9.02. Therefore, in real terms, you would not ever be using tax credits to pay the Employers NI part.

Hope that all makes sense... all got a bit confusing. This is how I understand it. I'm a nanny not a tax consultant, so please seek professional advice if you require it... suggest Tax Credits Helpline as an initial point of call, then New Employers Helpline.

As far as I am aware, you can use them to offset all elements of the cost of employing an approved home childcarer / approved nanny (nannies gross pay and employers NI). Best to contact HMRC Tax Credits Helpline for advice though.

With 80% award, you will still need to pay 20% yourself, so I would be surprised if none of that 20% was taken up with paying employers NI (unless you are paying below the NI threshold, in which case there is no employers NI to pay).

You may wish to have a savings fund, to cover the eventuality of Tax Credits not paying you in time for when you need to pay your nanny. Delays I expect can occur and I would doubt a nanny would be very happy if they were not paid, due to some problem with tax credits.

What tax credit in particular are you able to claim - I presume you refer to Childcare Element of Working Tax Credit, is that right? There is a Maximum weekly amount for Childcare Element, I think it is £175 if one child, £300 if 2 or more children.

If you have one child, then with an entitlement of 80%, that would £140 a week cost that could be claimed. See WTC5

P49 Paying Someone For The First Time - this is a handy guide for doing the first week/month payroll for a new employee (in your case, a nanny). CA38 contains NIC's table A, which most people use. Employers NI kicks in once you are paying your employee £98 per week (all figures it should be noted are for 2007/08 tax year).

Lets say that your employee is paid £175 per week, gross - so that we can easily work out the 80% figure for tax credits. Tax credits would pay £140, leaving you to cover £35 plus employers NI which is £10.05 - so costing you £45.05 per week.

I think for tax credits purposes, you must be paying out (in some way) £175 for childcare in order that you get 80% of that paid. So for a useful figure, we want Weekly Earning + Employers NI = £175. Closest I can get is £166 + £8.90, £174.90 which isn't enough. So need to increase up to £167 + £9.02 = £176.02 which meets the 'spending £175 or over' amount we need.

So how many hours per week do you need a nanny for? Can their pay be £167 per week?

www.nannytax.co.uk

Have no idea. But you might try www.nannytax.xo.uk