Nanny Tax Codes
For Nanny Share
Options
Today many parents offer part time nanny jobs. This generally means that many nannies also have another job on the days
that they do not work for you. In the world of gross salaries this
creates no issues with their tax code or other employers. In "nanny
land" where nannies still tend to agree a NET salary this carries it's
own set of complications.
From 5th
April 2008
in the UK an individual has a personal tax code of 543L. This code means that they
receive £5435 tax free this year via PAYE. After the tax free allowance,
all income is taxed at 20% (Basic Rate - BR) and 40% (higher Rate - HR)
on all earnings over £36,000.
If the employee joins you without a P45
(as she is not leaving her other employment) A P46 will have to be
processed that would ask if she has other employment. This being the
case would mean that her starting tax code in your employment would be
BR (Basic Rate of 20%)
In a
second job, the income tax starts at the 20% band leaving out the tax
free allowance. For a second employer paying a net
salary (i.e. the employer picks up the additional tax liability) this
will mean that one family will pay a disproportionately higher tax
liability than the other employer
You have
3 dilemmas to consider, firstly do both employers register individually
with HMRC (If the nanny already has another job, then this is the
correct method) Secondly do you pursue the tax code split option. If the
nanny is already employed with an agreed net salary, then this is
generally the preferred option, but requires HMRC to make the necessary
arrangements. Thirdly you can agree a gross salary, which is in HMRC's
view the correct method.
Option 1 - Nanny Share Joint Employers
- When either Net
or Gross salaries are agreed
In
situations where a nanny share occurs for 2 families concurrently then
this can be treated as one joint employment and is the most straight
forward but not necessarily most cost effective arrangement. All the
costs are calculated proportionally against the time used by each
family. Both families register with HMRC as joint employer's and with
one PAYE scheme. It is usual for the families to draw up a service
agreement between both parties, outlying their share of the costs.
Registering
with HMRC as Joint
Employment - Tax code used 543L (2208-09)
Total Net to Nanny
is £ 400.00 per week
Gross is £ 532.64 per week
Tax £85.60
Employee NIC £47.04
Employer NIC £54.74
Total cost is £400 + £85.60 + £47.04 + £54.74 = £587.38/2 =
£293.69 each
See Illustrations
Below - How each employer can save
£848.64 SAVING in NIC payments
per annum
Registering
with HMRC as Individual
Employers
When
there is no shared time the nanny share must be treated as two separate
employments. Furthermore substantial savings can be achieved through
reduced NIC payments by each employer, as shown in the example
calculations below.
From the
employee's perspective this would also mean (subject to criteria) that
they would be entitled to 2 sets of SSP or SMP.
Option 2 - Nanny Share Tax
Code Split - When NET salaries are agreed.
(REQUIRES HMRC INVOLVEMENT)
To split the tax (code) allowances the nanny must
send a letter to the tax office in question signed by the nanny and
both employer's applying for the allowances to be split,
proportionally against each gross salary in each employment.
It can
take several weeks to arrange a tax code split, and we even know of
circumstances when the the local tax office has refused to split the
code. Tax code splits are not allowed to be applied retrospectively and
some tax offices may also cancel a previously agreed split at the start
of each new tax year. As part of our service we include a template
tax code split letter that the nanny can send to HMRC, to assist with
the process and ensure the correct code is allocated to each employer.
Tax code for employer (1) 271 &
employer (2) 271
Net 1 is £ 200 per week
Net 2 is £ 200 per week
Gross is £257.81 per employer - per week
Total Net to Nanny is £400 per week
Tax 1 £41.00
Tax 2 £41.00
Employee 1 NIC £16.81
Employee 2 NIC £16.81
Employer
1 NIC £19.56
Employer 2 NIC £19.56
Total cost employer 1 is £200 + £41.00 + £16.81 + £19.56 = £277.37
Total cost employer 2 is £200 + £41.00 + £16.81 + £19.56 = £277.37
£293.69 -
£277.37 each = £16.32 saving each
employer per week
£848.64 SAVING in NIC payments by each employer
per annum
Both employers will have to register for a payroll
scheme
Option 3 - Nanny Share
Gross Salary - When GROSS
salaries are agreed. (NO HMRC INVOLVEMENT REQUIRED)
Agree a
gross salary with your nanny and not a net nanny wage from the offset.
This will ensure that your total cost of employing your nanny is the
gross wage + Employers NI. The first employer will then tax the salary
at the tax code in force (543 - 2008/09) and the second employer will
tax the salary at basic rate. (BR)
Tax code for employer (1) 543L & employer (2) BR - Basic
Rate
Gross is
£257.81 per employer - per week (same as tax code split option)
Net 1 is £ 210.40 per week
Net 2 is £ 189.60 per week
Total Net to Nanny is £400.00 per week
Tax 1 £30.60
Tax 2 £51.40
Employee 1 NIC £16.81
Employee 2 NIC £16.81
Employer
1 NIC £19.56
Employer 2 NIC £19.56
Total cost employer 1 is £210.40 + £30.60 + £16.81 + £19.56 = £277.37
Total cost employer 2 is £189.60 + £51.40 + £16.81 + £19.56 = £277.37
£293.69 -
£277.37 each = £16.32 saving
each employer per week
£848.64
SAVING in NIC payments by each employer
per annum
Both employers will have to register for a payroll
scheme
We can help you calculate the most cost
effective solution with either nanny share option. Confused? then
please contact us
here for further assistance
on the most
effective nanny share payroll solution for you.
All
calculations shown above are for illustrative purposes ONLY
