Nanny Tax, National Insurance and Employer’s Responsibilities
Nanny Tax Legal and National Insurance Responsibilities:
If you employ a nanny and pay them more than the tax and national insurance threshold (please refer to new rates and thresholds.) the law requires you to:
- Register as an employer with HMRC
- Keep a payroll record and provide payslips to your nanny
- If applicable pay Employee’s Income Tax and National Insurance Contributions
- If applicable pay Employer’s National Insurance Contributions
- Provide an annual summary of all deductions and payments
- Enrol with the Workplace Pension Scheme, where applicable
These obligations also apply:
- If your employee has two or more part-time jobs and her total weekly earnings exceed the current thresholds (please refer to new rates and thresholds.)
- In short-term employment (i.e. a week or longer)
- To any employment taking place in the UK – irrespective of the country of origin of the nanny or employer
Remember that National Insurance Contributions go towards your employee’s entitlement to unemployment and state pension benefits
Failure to register as an employer if you are paying your nanny above the weekly threshold is an offence, which can potentially lead to heavy penalties:
- Failure to file the employer’s returns to HMRC on time will result in penalties of £100 per month.
- Failure to pay all tax/NI liabilities results in interest being charged on the amount
With very few exceptions (maternity nurses and nannies who are or have been in continuous temporary employment), nannies do not meet HMRC criteria for self-employment. Remember, if liability to pay tax is not declared to HMRC and it comes to light, it is you, the employer who will be pursued for payment, not your employee (unless you have a contract in place which states the person you employ is working on a self employed basis).
Net or Gross Wage
Historically when nannies discussed a salary with families they often referred to the net wage (the amount the nanny receives into their bank account at the end of the week or month). In reality a nanny is always paid a gross wage which is their net wage plus their tax and national insurance contributions. On top of the gross wage the family may also be obliged to pay employer’s national insurance contributions, if the amount the nanny is paid exceeds the current tax threshold (for current thresholds and helpful tax calculators please refer to new rates and thresholds and tax calculator). Therefore there can be a considerable difference between the net wage and the true cost of employing a nanny. Parents are therefore advised to always ensure that the nanny is referring to their gross salary and to always agree a gross salary with their chosen nanny.
As an employer you are also responsible for:
- Ensuring you pay your nanny no less than the National Minimum Wage – It is a criminal offence to pay below it, please note that the NMW usually goes up every October.
- Paying Statutory Sick Pay
- Paying Statutory Maternity Pay – Employers can usually reclaim the SMP costs involved, although every case is different. Your nanny should provide you with a Maternity Certificate (MATB1) for this purpose. The MATB1 is issued 20 weeks before the baby’s due date and your nanny can get this from their doctor or midwife.
- To provide a valid contract of employment (First Class Nannies and Helpers will supply you with a standard nanny contract once a nanny has accepted the post you have offered them).
- Ensuring you give your nanny the correct amount of holiday entitlement.
Becoming an employer for the first time can be a daunting prospect. Many families do not have a working knowledge of the tax system and the legal obligations and responsibilities involved and/or do not wish to contact their local tax office and tackle the paperwork involved directly.
Way2Paye are a nanny payroll company that First Class Nannies and Helpers have personally dealt with over many years. They are a family run business that offers an inexpensive, warm and professional service. With their complete support they effortlessly guide you through the process and take care of all your payroll responsibilities for you.
You only need to supply them with some pieces of basic information like your nannies working hours, their rate of pay and their national insurance number. Way2Paye will then register you as an employer, provide you with payslips, P60s, and when necessary process a P45 for you, they inform you how to pay the HMRC, when and how much to pay and they can also offer advice on any payroll or legal issues that may arise.
Please contact us on 01347 822208 or email firstname.lastname@example.org if you would like us to send you some documentation on the benefits that the services of way2pay can offer.