Childcare Agencies — Running a Nanny Placement Business

Starting a childcare agency — matching families with nannies, au pairs, babysitters, or other childcare professionals — can be a rewarding business that fills a genuine need. But it is also a business with its own distinct set of tax, regulatory, and operational considerations. Whether you are just getting started or already placing nannies and looking to tighten up your finances, this guide covers what UK childcare agency owners need to know.

How Childcare Agencies Earn Income

Before diving into tax, it helps to understand the typical income models for childcare agencies:

• Placement fees — A one-off fee (often 2-6 weeks of the nanny's gross salary) charged to the family when a permanent placement is made.
• Temporary/relief fees — An hourly or daily rate for temporary nannies, babysitters, or emergency childcare. The agency charges the family and pays the carer, keeping a margin.
• Retainer fees — Some agencies charge ongoing retainer fees for continued support, replacement guarantees, or payroll services.
• Introduction fees — A lower fee model where you simply introduce families and carers, with no ongoing employment relationship.

All of these are taxable income. The structure of your business — sole trader, partnership, or limited company — determines exactly how you are taxed.

Choosing a Business Structure

Many small childcare agencies start as sole trader businesses, which is the simplest option. You register as self-employed with HMRC, file an annual Self Assessment return, and pay income tax and National Insurance on your profits.

The personal allowance is £12,570 (no tax on the first £12,570 of total income), and the basic rate is 20%. Your profits from the agency are added to any other income you have.

However, as childcare agencies often involve more complex finances — particularly if you are running a temporary nanny service and handling payroll for multiple carers — many agency owners find it beneficial to incorporate as a limited company once the business grows. This can offer tax advantages (through a salary/dividend combination) and limits your personal liability.

For a comparison of the two structures, see our guide on sole trader vs limited company.

Ofsted Registration — A Legal Requirement

If your agency introduces childcare workers to families, you are legally required to register with Ofsted (in England) as a childcare agency. The key requirements include:

• Registration with Ofsted and payment of the annual fee.
• DBS (Disclosure and Barring Service) checks on all staff within the agency and all childcare workers you place.
• Compliance with the Childcare Agency Regulations.
• Regular Ofsted inspections.

In Scotland, you register with the Care Inspectorate. In Wales, it is Care Inspectorate Wales. Northern Ireland has its own Health and Social Care Trusts.

The costs of Ofsted registration, DBS checks, and compliance are all deductible business expenses. Failing to register can result in prosecution, so this is non-negotiable.

Allowable Expenses for Childcare Agencies

Running a childcare agency involves a range of costs, most of which are tax-deductible:

Regulatory and Compliance

• Ofsted registration and annual fees
• DBS checks — For agency staff and childcare workers you place.
• Insurance — Public liability, professional indemnity, and employer's liability (if you have staff).
• Legal fees — Contract drafting, regulatory advice, and employment law guidance.

Staff and Subcontractor Costs

• Employee wages — If you employ staff (coordinators, office managers, bookkeepers), their salaries, employer's NI, and pension contributions are deductible.
• Temporary nanny payments — If you operate a temp agency model where you pay the nanny and invoice the family, the nanny's pay is a cost of sale.
• Training — First aid courses, safeguarding training, and professional development for your staff and the nannies you place (if you cover the cost).

Marketing and Client Acquisition

• Website and SEO — Domain, hosting, design, and search engine optimisation.
• Advertising — Online ads (Google, Facebook, Instagram), local directories, parenting magazines, and community noticeboards.
• Networking events — Attendance at childcare expos, business networking groups, and parenting events.
• Photography and branding — Professional photos for your website and marketing materials.
• Referral incentives — If you offer discounts or gifts for referrals, the cost is deductible.

Office and Admin

• Office rent — If you have dedicated office premises.
• Use of home — If you run the business from home, claim a proportion of household costs. See our complete expenses guide for how to calculate this.
• Phone and broadband — The business proportion of your telecommunications costs.
• Software — CRM systems, matching platforms, accounting software (like Accounted), payroll software, and communication tools.
• Stationery and printing — Contracts, welcome packs, and other paperwork.
• Postage — Sending contracts, DBS documents, and other correspondence.

Professional Development

• Industry memberships — Recruitment and Employment Confederation (REC), local childcare networks.
• Courses and qualifications — Recruitment training, childcare sector CPD, and business skills courses.
• Conferences — Travel and attendance at industry events.

Travel

• Business travel — Visiting families' homes for consultations, meeting nannies for interviews, and other business journeys. Use HMRC's approved mileage rate of 45p per mile for the first 10,000 miles. See our mileage guide for details.

The Employment Status Question

One of the most important considerations for childcare agencies is the employment status of the nannies and carers you place. This breaks down into two main scenarios:

Introduction-only model: You introduce the family and the nanny, the family employs the nanny directly, and you charge a placement fee. In this case, the nanny is the family's employee — the family is responsible for their PAYE, National Insurance, and employment rights. You are simply selling a recruitment service.

Temporary agency model: You supply temporary nannies to families, the nanny works under your direction (or the family's), and you invoice the family and pay the nanny. In this case, you may have employment obligations towards the nanny, including:

• Operating PAYE on their earnings.
• Paying employer's National Insurance contributions.
• Providing holiday pay, sick pay, and other statutory entitlements.
• Auto-enrolment in a workplace pension scheme.

The distinction matters enormously for your costs and your tax position. If you are operating a temp model, the nannies' pay and associated employer costs are significant expenses that reduce your taxable profit — but they also create substantial payroll obligations.

Getting employment status wrong can be very expensive. HMRC can pursue the agency for unpaid PAYE and NI, and employment tribunals can award compensation if workers' rights have been denied.

Helping Families with Payroll

Many childcare agencies offer an ancillary payroll service, helping families who employ nannies directly to manage their PAYE obligations. This is a valuable additional income stream — families are often completely unfamiliar with being an employer and are happy to pay someone to handle it.

If you offer this service, the fees you charge are taxable income. The costs of payroll software and any staff time spent on payroll processing are deductible expenses.

VAT for Childcare Agencies

The VAT registration threshold is £90,000. If your agency's turnover exceeds this in any rolling 12-month period, you must register for VAT.

Recruitment and placement services are standard-rated at 20%. This means you would need to add VAT to your placement fees and invoices, which could affect your competitiveness if your clients are families (who cannot reclaim VAT). However, you would be able to reclaim VAT on your business purchases.

If your turnover is approaching the threshold, it is worth planning ahead. Our VAT registration threshold guide covers the considerations.

Record Keeping

HMRC expects you to keep business records for at least five years. For a childcare agency, this includes:

• Records of all placement fees, temporary charges, and other income.
• Contracts with families and childcare workers.
• DBS check records and Ofsted correspondence.
• Receipts for all business expenses.
• Payroll records (if you operate PAYE for temporary staff).
• Bank statements.

Accounted can handle much of this automatically. Connect your bank feed, and Penny will help categorise your income and expenses. You can store digital copies of receipts and keep everything in one place — which is particularly useful when Ofsted comes calling and wants to see your records.

Data Protection — GDPR Matters

Childcare agencies handle sensitive personal data — DBS check results, references, family contact details, and children's information. You must comply with the UK GDPR and Data Protection Act 2018, which means:

• Registering with the Information Commissioner's Office (ICO) — the fee is a deductible expense.
• Having a clear privacy policy.
• Storing data securely.
• Only keeping data for as long as necessary.
• Obtaining proper consent for data processing.

Breaches can result in significant fines, so take this seriously.

Growing Your Agency

As your childcare agency grows, consider:

• Diversifying services — Adding maternity nurse placements, au pair matching, or nanny training.
• Geographic expansion — Covering a wider area or opening in new regions.
• Online presence — Investing in SEO and content marketing to attract both families and nannies.
• Technology — Using matching algorithms or a dedicated app to streamline placements.
• Incorporation — Moving from sole trader to limited company as profits grow.

Each stage of growth brings new tax considerations, so keep your bookkeeping current and review your structure periodically.

Accounted helps UK sole traders stay on top of their bookkeeping and tax. Start your free 30-day trial at getaccounted.co.uk.

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Related reading:

• Sole Trader Expenses — The Complete List
• How to Register as Self-Employed with HMRC
• How Much Tax Will I Pay as a Sole Trader?

Related Reading

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• Drone Operators — Commercial Drone Business Tax Guide
• Speech Therapists in Private Practice — Tax Guide

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