What Does Labour’s Recent Budget Mean for Families Employing Nannies?
The new Labour government introduced some major tax changes in its first budget on 31 October, and several of them could impact you from next year if you’re employing a nanny.
We’ve listed the main changes and whether they could affect your family below:
1. Minimum Wage Increase
Starting in April 2025, the National Minimum Wage is set to increase by 6.7% to £12.21 per hour for those over 21. For many families, this will mean adjusting their budget accordingly if they pay their nanny hourly, especially if their rate is close to the current minimum wage. The bump is part of Labour’s commitment to improve wages and help offset rising living costs. While the change is good news for nannies, families must plan for the higher rates. Further, the accommodation offset daily rate (the amount that can be dedicated from pay for expenses such as food and accommodation etc.) will increase to £10.66 per hour for those over 21, and £10.00 for those aged 18-20.
What to Do: It’s a good idea to review your budget and pay projections now. This way, when the change is effective you’ll be well prepared for the updated rates. Consulting a payroll service or accountant may also help you calculate the impact. Those who employ a nanny who splits their time between several families will need to be especially careful that they are paying the National Minimum Wage for the hours contracted to them.
2. Changes to National Insurance Contributions (NICs)
The budget also included adjustments to employer National Insurance Contributions (NIC). The NIC employers will pay on wages is set to increase from 13.8% to 15% from April next year, and the threshold at which NIC is payable will reduce to £5,000 from the current £10,000, meaning NIC will be chargeable at a lower level.
Chancellor Rachel Reeves also raised Employment Allowance (relief that allows eligible employers to reduce their annual NIC liability) from £5,000 to £10,500. However, this change does not apply to nannies; although it does to other types of care and support workers. Details can be found on HMRC’s website.
What to Do: Consider taking expert financial advice from an accountant or other professional if you are unsure whether you qualify for Employment Allowance or other exemptions.
3. Other changes for parents
The chancellor also announced several other changes that will impact families. Child Benefit will increase to £26.05 a week for your eldest child and £17.25 for an additional child in April. Funding for free breakfast clubs will also be tripled, and the school budget will increase by £2.3 billion to fix “crumbling” school buildings, the government announced.
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Final Thoughts:
The most significant impact on the finances of families who employ a nanny from Labour’s latest budget announcements will likely be the increase in the minimum wage, depending on whether they already pay above this level. Finally, for those with older children attending private school, any increase in the cost of employing a nanny coupled with the 20% VAT rate on private school fees from January 1 next year could stretch the budgets of some households.
At Dovetail Nannies we are committed to working with your family to find the best and most cost-effective solution for you. We have no hidden fees or charges and making finding a nanny as simple as possible is at the core of our mission.
