In a medium sized saucepan combine the water and sugar. Heat over a medium heat, brushing down the sides of the saucepan with a pastry brush and water. Do not stir the sugar mixture. Continue cooking until the sugar turns a dark brown colour.
Quickly pour in the cream while stirring, taking care as the mixture may splatter.
Stir in the butter, vanilla and remove the pan from the heat to cool.
Once cooled, pour into a jar. Extra caramel can be covered and refrigerated for up to 5 days.