The hidden costs of paying your nanny cash in hand

Paying your nanny "cash in hand" without managing tax and payroll is illegal tax evasion. As an employer, you are avoiding your legal duty to pay Income Tax, National Insurance, and pension contributions. This can lead to severe penalties from HMRC, including fines of up to 100% of the tax owed and having to pay all backdated employer and employee tax and NI.

It can seem tempting. Your nanny might ask for it, or you might think it’s a simple way to avoid the "hassle" of payroll. Paying your nanny in cash, with no payslips or deductions, seems like an easy arrangement.

But this "simple" arrangement is one of the most significant financial and legal risks a nanny employer can take.

In the eyes of the law, it's not "cash in hand"—it's tax evasion. It exposes you to huge financial penalties, legal trouble, and leaves your nanny without any of the legal protections they are entitled to. Here are the hidden costs you need to be aware of.

The Legal Risk: You Are Committing Tax Fraud

Let's be clear: it is perfectly legal to pay your nanny in physical cash. However, it is illegal to do so without:

1. Registering as an employer with HMRC.
2. Operating a PAYE (Pay As You Earn) payroll.
3. Deducting your nanny's Income Tax and National Insurance.
4. Providing them with a legal payslip for every payment.

When people talk about "cash in hand," they almost always mean doing it without this legal framework. You are not "saving" tax; you are illegally evading it. Because a nanny is almost never self-employed, you are their employer, and the responsibility for their tax lands squarely on you.

The Financial Risk: HMRC's Penalties

This is not a risk worth taking. HMRC has a dedicated task force for "hidden economy" compliance and can investigate at any time—often triggered by the nanny when the job ends badly.

If you are caught, you will be liable for a truly painful bill.

• All Backdated Tax: You will have to pay all the Income Tax that your nanny should have paid.
• All Backdated National Insurance: You will have to pay all the employee's NI and all the Employer's NI you were meant to pay.
• Hefty Fines: HMRC can add a penalty fine of up to 100% of the total tax owed, depending on how deliberate they believe the evasion was.
• Interest: You will be charged interest on all of this, backdated to when it should have been paid.

Imagine your nanny's £10,000 net salary should have been a £13,500 gross salary. Now imagine paying the tax, NI, and employer's NI on that for the last two years, plus a 100% penalty. The bill could easily be over £20,000.

The Insurance Risk: No Cover When You Need It

To legally employ someone in your home, you must have Employer's Liability Insurance. This is not optional, and you can be fined £2,500 for every day you are not insured.

If you pay cash in hand, you almost certainly haven't taken out this insurance. If your nanny has an accident in your home—slips on a wet floor, or is scalded by a kettle—you are personally liable. Your standard home insurance will not cover you. You could be facing a personal injury claim with no insurance to back you up.

The Employment Risk: Denying Your Nanny's Rights

When you avoid payroll, you are also denying your nanny all their fundamental employment rights. This means they are getting no record of:

• Holiday Pay: They are legally entitled to 5.6 weeks of paid leave.
• Statutory Sick Pay (SSP): If they are ill, they have no right to sick pay.
• Pension Contributions: You are failing to enrol them in a workplace pension, effectively stealing from their future.
• Maternity/Paternity Leave: They will not be able to claim statutory parental leave as they have no proof of earnings.

This creates a high-risk, low-trust relationship. If the job ends, your nanny has every incentive to report you to HMRC or Acas to claim the rights they were denied. An employment tribunal will take a very dim view of an employer who has been deliberately avoiding their legal duties.

But My Nanny Asked for It...

This is a common trap. A nanny might ask for cash to stay under a tax threshold or because they don't understand the system.

It does not matter. As the employer, the legal responsibility is 100% yours, not theirs. If you are caught, you cannot use "my nanny asked for it" as a defence. You will be the one HMRC holds accountable for all the unpaid tax and penalties.

The only way to protect yourself and be a fair employer is to agree on a gross salary. This way, you know your costs, and your nanny gets a legal salary, a payslip, and all the rights they are entitled to.

The Easy, Compliant Solution

Being a legal employer isn't "hassle"—it's a requirement. But it doesn't have to be hard.

This is exactly what Quinn was designed to solve.

Our payroll service takes care of everything for you: From registrations with HMRC and pension setup to running your payroll and providing legal payslips. We handle the admin so you can be a confident, compliant employer without the stress. Fully digital, no paperwork, no hidden risks.