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.
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 (see example below)
Nanny Share - Same NET but no TAX FREE allowance for employer 2
Individual
Employers £300
Net per week salary agreed
(£150 each per week agreed by each employer)
Employer 1 (using full tax code 810L) £150.54 Gross per week = £150 NPW.
Employers NI in addition to gross salary is £0.91 per week. Total cost
employer 1 is £151.45 per week.
Employer 2 (using BR tax code) £194.64 Gross per week = £150 NPW.
Employers NI in addition to gross salary is £6.99 per week. Total cost
employer 2 is £201.63 per week.
Using this method the second employer will
pay a disproportional amount of tax compared to employer one, unless a
proportional tax code split is advised from HMRC.
Agree a gross salary &
protect your total employer cost
A gross pay agreement will automatically
protect your total employment costs, and so it does not matter if the
current share dissolves or changes. If you agree a gross wage, the
necessity for any communication between you and the other employer can be
kept to a minimum, or not at all.
If you still choose or have already agreed a net wage with your nanny,
then we recommend that the employee's tax code is split. A tax code split
should be proportionate between the jobs, based on salary value. Before a
tax code split can be applied HMRC need approval from the nanny. The
nanny can call the HMRC dedicated helpline or send a letter (we provide
the template) outlining the employments and share of tax free allowance
to be applied to each employer. The process is straight forward but you
are relying on HMRC to action the request quickly & efficiently!
Agree a Gross Salary from the start -
use actual tax codes in force (810 & BR)
Scenario 1 -
By each employer agreeing a gross salary
from the offset. If the tax codes remain at full (810 for tax year
2012-13) and BR. This will not affect the employer's cost, but
each employer will have a different NET
amount to pay to the employee with the total overall still being the
same. Tax Nanny will calculate a net equivalent rate for you based on
your share of the employment.
Employer 1 (using half the tax code 405T)
£150 net per week = £171.68 Gross per week. Employers NI in addition
to gross salary is £3.82 per week. Total cost
employer 1 is £175.50 per week. USE 810L tax code =
£165.60 Net p/w
Employer 2 (using
other half the tax code 405T) £150 net per week = £171.68 Gross per
week. Employers NI in addition to gross salary is £3.82 per week. Total cost
employer 1 is £175.50 per week.
USE BR tax code = £134.40 Net p/w
Employee total net = £300 p/w
The employer costs are the same, the
employee has the same gross salary in each employment, but based on tax
code in force will result in different net payments from each employer,
but overall the same total net.
Nanny Share
Tax Code Split - (HMRC will split the tax code)
To split the tax (code) allowances the nanny must
call or send a letter to the tax office in question signed by the nanny
(template provided) applying for the allowances to be split,
proportionally against each salary in each employment.
Scenario 2 - Individual
Employers - Requesting a proportional tax
code split from HMRC.
Assuming a
combined NET salary of £300 Net per week resulting in
£150 net per week each as a 50/50 split of 810L tax code.
Employer 1 (using half the tax code 405T)
£150 net per week = £171.68 Gross per week. Employers NI in addition
to gross salary is £3.82 per week. Total cost
employer 1 is £175.50 per week.
Employer 2 (using
other half the tax code 405T) £150 net per week = £171.68 Gross per
week. Employers NI in addition to gross salary is £3.82 per week. Total cost
employer 1 is £175.50 per week.
Tax code
splits are not allowed to be applied retrospectively so if this becomes
the final choice, scenario 1 should be used until such time as HMRC
issues the new tax codes to each employer.
Please note that the employee will have
to be shown as registered in both employments, by means of P45 or P46
submission before a split can be arranged.
Please contact us
for a bespoke calculation based on current rates & allowances
