Auto enrolment is sparking a lot of middle class parents to pay their nannies with cash in hand to avoid their new pension liabilities, leading to more and more “black market” nannies.

Small employers (i.e. parents in this context), will be obliged to pay almost £500 a year more for their nannies, rising to over £1,000 by 2018, when the contributions increase.

Britain already has some of the highest childcare costs in the world and this new burden is only going to dismay the “squeezed middle” further.

Predictions are already being made about parents opting to open themselves up to the risk of a knock on the door from HMRC by paying their nannies in cash to save themselves having to pay NIC, income tax and now having to pick – and contribute to –  a new scheme.

Many families are simply unaware of their status as employers – many mistakenly believing that nannies are self-employed and are responsible for their own taxes.

Under the new rules, employers mustn’t “actively encourage” their employees to opt out of any scheme, but many suspect that this is exactly what goes on behind closed doors.

This latest drive may have unintended consequences as many women, who were already on the cusp of being out of pocket by being in full time employment and having to pay for childcare, opt to quit their jobs and stay at home to look after the children.

If you’re unsure about where you stand or what you should do – as a nanny or a parent – just drop us a line here at East London Accountants and we’ll be glad to help.