Ugh! Tax...National Insurance...those dreaded words! As if you weren't paying enough each week to keep the girl you have to pay yet more for her tax and National Insurance as well as an employer’s NI contribution. And yes, you do, have to pay it. Your nanny is an employee like anyone else and has a right to having her tax and her national insurance contributions paid by her employer: you.

There are certainly people who try to avoid paying. Some say that their nanny earns less than £64 a week - below the current tax and National Insurance threshold - and then they top her salary up with cash. But there are problems with this practice:

• It is illegal under tax legislation.
• The nanny will not earn any rights to a pension or employment benefits, or be able to take out a loan or mortgage which require proof of earnings.
• When the Revenue catches up with you will be liable to pay all the tax and NI including interest and penalties. You have no legal right to make the nanny pay it as it is your liability as an employer.

Another little wheeze some people try is to say that their nanny is self-employed. But in fact, even if she is part-time or in a nanny-share scheme the tax office still regards her as an employee because:

• You can decide what hours she will work and for what rates of pay
• She does not provide her own equipment and materials
• The nanny is not able to hire other people to do the work instead of her

Some people choose antipodean nannies on the assumption that they won't have to pay tax and NI for them. This again is not true. No foreign worker is exempted from paying tax and National Insurance. However, a lot of people get away with not paying foreign girls' tax and contributions because they are often not in the country long enough for the taxman to realise they are earning anything.

By the way, make sure you and the nanny are clear from the start whether the salary you are offering is gross or net. Nannies tend to think in terms of net pay so you may have to tell her the salary in those terms too. But do let her know what the gross pay is and what the gross annual salary will be too so that she is assured that you will pay her tax and National Insurance.

You may find that the easiest solution to the tax and NI nightmare is to get a specialist agency to do it for you. We recommend Nannytax to all our clients. You can contact them on 01273 626256.

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