With the news that salaries for full-time nannies in London have passed the £50k mark for the first time, you may be wondering how exactly tax works for those who look after children professionally. What expenses can nannies claim, for example? And what are their responsibilities tax-wise?
Perhaps you already work as a nanny, in which case you’re probably thinking about how you can avoid the higher rate (40%) tax bracket now that the average salary has gone up. Well, whatever your situation, we’re here to help and hopefully provide some answers.
What are my responsibilities as a self-employed nanny?
First and foremost, unless you work for an agency or client as an employee, you’ll be responsible for declaring your earnings to HMRC as a self-employed person, so you’ll need to submit a Self Assessment tax return.
This includes telling HMRC about your earnings and any business-related expenses over a 12-month period, so good record-keeping is absolutely essential.
In terms of the actual taxes you’ll owe, this depends on how much you earn. For instance, if you operate as a sole trader, you’ll normally be liable to pay:
- Income Tax, which you owe when you earn more than the tax-free personal allowance of £12,570 per year (in the 2025/26 tax year)
- National Insurance, which is a tax you pay that entitles you to certain state-provided benefits, including things like the State Pension, Job Seeker’s Allowance, Maternity Allowance, and so on
Your tax bill might also include things like Student Loan repayments, so it’s often useful to submit your return as soon as possible. That way you have more time to prepare for the payment deadline on 31st January!
How much can I earn as a self-employed nanny in London?
It firstly depends on whether you choose to work full-time or part-time but, as mentioned above, the average salary of a full-time nanny working in London has passed £50,000, and figures for the 24/25 tax year show nannies in the capital have enjoyed a record 9.7% pay rise.
In fact, the average wage of a London-based nanny has increased by almost half over the past five years.
How much tax will I pay as a nanny?
Income Tax is paid in ‘bands’ or ‘brackets’, so you’ll pay the tax rate on the part of your earnings which fall into that bracket:
- You won’t pay tax on earnings up to £12,570
- Earnings between £12,571 and £50,270 are taxed at the basic rate (20%)
- Anything you earn between £50,271 and £125,140 is subject to the higher rate (40%)
- Your earnings over £125,140 attract tax at the additional rate (45%)
So, if you earn £60,000 per year, you won’t suddenly pay 40% tax on the entire £60k. Instead, you won’t pay any tax on the first £12,570. After that, you’ll pay 20% tax on your earnings between £12,570 and £50,270, and then you’ll pay 40% on the £9,730.
In terms of National Insurance:
- There’s more than one type of NI, and the different types are split into classes
- The class of NI you pay depends on your employment status and how much you earn
- As a self-employed nanny, you’ll pay Class 4 National Insurance (6%) on anything you earn between £12,570 and £50,270
- Any earnings over £50,270 are subject to NI at 2%
How to stay outside the 40% tax bracket
While it’s great to be earning more, that also means you’ll likely have more tax to pay (which isn’t so great).
For example, if you’re a nanny in London whose salary is now creeping above £50,000, you may soon be liable to start paying the higher rate of tax, which is 40%.
You would of course only pay the 40% on any earnings over the £50,271 threshold, but still; no one wants to pay more tax than they absolutely have to. So, what are some things you can do to make sure you’re being as tax-efficient as possible?
Check if you’re eligible for any tax allowances or deductions
Your first port of call should be to check if there’s anything you’re automatically entitled to. For example, the marriage allowance means a spouse can transfer some of their tax-free allowance to their partner as long as they’re not already using it themselves.
There are also allowable expenses to consider if you happen to be self-employed. Any business expenses can be deducted from your earnings, leaving you to pay tax on the profits that are left, so claiming expenses can enable you to reduce your tax bill.
Open a savings account
With an Individual Savings Account (ISA), you can save up to £20,000 each year. And the best part? It’s tax-free. This means any income your ISA generates (e.g. interest or dividends) is exempt from Income Tax.
As ISA income isn’t taxable, it doesn’t count towards the personal savings allowance or the dividends allowance, and you therefore don’t have to tell HMRC about it.
Ensure you’re paying into a pension scheme
If you work as a nanny then you may be able to be more tax efficient by paying into your pension.
If you’re employed (for someone else, or through your own limited company) then your pension contributions are taken before you pay tax on your income. This reduces your taxable income, and also means you’re putting aside something for the future.
Sole traders make pension contributions from their net profits (the amount left after paying tax and all your other expenses) so it won’t reduce your tax bill, but the government will add tax relief to top up your payments at the basic 20% tax rate. If you’re a higher rate taxpayer, you could even claim more relief through your Self Assessment tax return!
Donate to charity
Perhaps the most obvious way to reduce your tax bill is by donating to a charity (or an amateur sports club). Donations of this kind are completely tax-free and can help you avoid the higher tax bracket.
What expenses can a nanny claim for?
As previously mentioned, if you’re a self-employed nanny, you might be able to deduct allowable expenses to reduce your tax bill. These costs could include things like:
- Travel and transport costs (e.g. petrol, parking, train or bus fares)
- Job-specific training and professional development (e.g. first aid and childcare training)
- Any equipment/supplies you might need
- Marketing/advertising costs (e.g. if you have a website or some other form of online presence)
Find more help with accounting and finance for your London-based business in our information centre.