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Nanny Tax
The UK's leading payroll service for parents and their nannies
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Employing a nanny - a taxing issue!
When parents in the UK employ a nanny they also take on
all the statutory (ie.legal) responsibilities that go with becoming
an employer including the need to keep tax records, provide
payslips, file tax returns -in short all the paperwork involved in
running a PAYE tax scheme. Nannies do not meet the Inland Revenue
criteria for self-employment and so cannot be asked to sort out
their own tax position.
Registering as an employer
The first requirement is to contact your local tax office and register as an
employer. This process will bring you a hefty beginners pack through
the post containing tax and NI tables. Tax and NI payments are made
on a quarterly basis to the Inland Revenue and money may need to be
put aside for this purpose.
Net and Gross Wages
Most nannies (and nanny agencies) agree a net
wage with a new employer. This is an unfortunate anachronism since
all employees in the UK are actually paid a gross wage from which an
employees tax and National Insurance (NI) Contribution are deducted
to arrive at a net (ie. take-home) wage. The real cost of employment
But the total cost of employment includes both the gross wage and an
additional Employer’s NI Contribution. This means that the total
cost of employment at current tax and NI rates can be as much as
fifty percent higher than the net wage under discussion. So it is
clearly important to establish the true cost of employment before
agreeing a net wage.
Entering a minefield of employer legislation
In addition
to deducting tax and NI correctly, parents will need to be in
compliance with a raft of recent employment legislation, including
the National Minimum Wage (NMW) which has now increased to £3.20
gross per hour for employees aged 18-21, and £3.70 per hour for
those aged over 21 - and the minimum annual paid holiday entitlement
- currently four weeks a year including bank holidays.
NMW exemptions for some live-in nannies and
offset allowances for others.
Nannies who live in the family household (ie. for whom separately metered
accommodation is not provided) are exempt from the NMW. There is a
small offset allowance (currently up to £20 per week) against the
NMW for nannies for whom separate accommodation is
provided.
Running your PAYE scheme
The Inland Revenue offers a Simplified
Deduction Scheme for Domestic employers - which involves slightly
less paperwork - but nowadays many domestic employees (including
nannies) are paid above the maximum qualifying level for the
Simplified scheme! Tax and NI deductions are made at the same rate
irrespective of which scheme is run.
Inland Revenue penalties for late payment and late filing
New employers operating a normal PAYE scheme
should be aware that there are interest payments triggered by late
payment of tax and NI liabilities as well as stringent penalty
payments (of £100 per month filed late) for filing your employer’s
annual return late.
Getting to grips with running a PAYE scheme
Since there are three different income tax bands currently in force as well as
separate NI calculations to make, mastering the tax tables, all of
which are based on gross pay, can prove to be a time-consuming and
frustrating process - especially when pay has been agreed on a net
basis! As an employer you will also be responsible for administering
Statutory Sick Pay, Statutory Maternity Pay (should it arise) as
well student loan repayments and the new Working Families Tax
Credit, if either is applicable, through your employee’s payroll.
Inexpensive specialist help is at hand
The alternative is to use an inexpensive specialist payroll service for
domestic employers, such as Nannytax, the market leader in this field
- currently £140+ vat for an annual
subscription - who will also provide unlimited advice on all current
employment legislation. This is equivalent to having your own
(outsourced) personnel and payroll departments at hand. They will
keep all PAYE records for you, send annual returns on your behalf to
the Inland Revenue, and send you regular payslips for your nanny and
payment slips for your tax and NI liability. You could also use an
accountant to run your PAYE scheme (who is likely to charge at least
twice this amount).
Using your PAYE responsibilities to best effect
Since parents pay their nanny out of their own (already taxed) income,
without being able to claim any tax benefit, they understandably
tend to look upon both cost of employment and PAYE compliance issues
as a burden. But prompt attention to and efficient management of
these employment arrangements can be an important positive factor in
the working relationship between parent and nanny.
A positive approach will pay dividends
It is an opportunity to show your nanny that
you respect her status as a young professional in her own chosen
field and indeed recognise her rights as an employee. This is
perhaps especially important in a type of work in which she will
often be quite isolated from her peer group inside the family home.
So prompt attention to these issues can help to generate goodwill
and increased loyalty from your employee.
For a more detailed information pack about the
following these issues please contact NANNYTAX on 01273 626256 or
visit their website at www.nannytax.co.uk
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Nanny Tax
PO Box 988, Brighton, BN2 1BY
Tel: 01273 626256
Fax: 01273 607733
E-mail: mailbox@nannytax.co.uk
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