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Nanny Tax Codes For Nanny Share Options

Nanny Tax Payroll Service - Tax & NIC calculated for nanny employer'sToday 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.

Click here to register for payroll servicesRegistering 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

Click here to register for payroll servicesTax 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

Click here to register for payroll servicesTax 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