Routine expenses
To avoid having to report expense payments to HMRC, employers can run a petty-cash style float, so that the
nanny takes the money before spending it. Typically, this would be kept in the kitchen, with a notebook for
the nanny to record expenditure and provide receipts. This will cover money for shopping, toddler group
fees, swimming etc. - anything that you have said you will be happy to pay for. Provided you operate the
float system, the nanny does not need to submit an expense claim and no HMRC reporting liability arises.
The same principle can be applied to a bank account or credit card, but a far safer option is a prepaid debit
card. These are accepted anywhere that a debit or credit card is accepted, and the nanny cannot run up any
debt. Provided all expenditure is carefully accounted for in a notebook, no HMRC liability arises.
Mileage payments for a nanny that uses her own car
The notebook can also cover mileage payments, if the nanny’s own car is being used to transport your child.
Most nannies are paid 45p per mile, because 45p is the maximum HMRC will allow without attracting tax or
NI.
These payments are Mileage Allowance Payments (MAPs), and attract no reporting requirement or tax
liability. You can pay up to 10,000 miles per annum at 45p per mile. In the unlikely event that threshold was
exceeded, the rate must drop to 25p per mile.
Of course, 45p per mile is much more than the cost of putting petrol in the car. The rate also allows for a
contribution towards other costs, such as insurance, road tax and depreciation. It makes sense to pay the
higher amount if you can, to take full advantage of the tax rule. Only 'business' mileage can be reimbursed
tax-free, not home to work.
You do have to calculate what the 45p will cost you each week, since high mileage will add up and become
very expensive. If mileage is expected to be particularly high, a lower rate per mile might be more
appropriate.
You must get the nanny to keep a record of each journey. You can't pay her the same amount each week or
month regardless, because that automatically becomes a ‘round sum’ allowance and as such is fully taxable.
Again, the best method for keeping track is via a petty cash float, with a notebook for the nanny to write in
journeys. That could easily be the same book that you use for other expenses. This method means that your
only input is to top up the float and review the book from time to time.
