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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 6th April 2009 in the UK an individual has a personal tax code of 647L. This code means that they receive £6470 tax free this year via PAYE. After the tax free allowance, all income is taxed at 20% (Basic Rate - BR)

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%)

Nanny Tax this month only £99.99 (Monthly Payslips)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.


Nanny Share & Joint Employers

Registering with HMRC as One Joint Employer

In situations where a nanny share occurs for 2 families concurrently then this can be treated as one 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. One family will register with HMRC with one PAYE scheme. It is therefore important for the families to draw up a service agreement between both parties, outlying their share of the costs.

Registering with HMRC as Individual Employers

When there is no shared time the nanny share must be treated as two separate employments. From the employee's perspective this would also mean (subject to criteria) that they would be entitled to 2 sets of SSP or SMP.

Nanny Share Tax Code Split  - Only HMRC can split the tax code

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  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.


Nanny Tax Calculation Examples: (For Illustrative purposes only)

Scenario 1- Joint Employers - £300 Net per week salary agreed
£381.01 Gross per week 647L W1 tax code = £300 NPW.
Employers NI in addition to gross salary is £34.69 per week. Total cost as an employer is £415.70 per week. Equates to £207.85 total cost per employer or divide this figure by the proportional use of each employer.

Scenario 2 - Individual Employers - £300  Net per week salary agreed (£150 each per week agreed by each employer)

Employer 1 (using full tax code 647L) £163.71 Gross per week = £150 NPW. Employers NI in addition to gross salary is £6.87 per week. Total cost employer 1 is £170.58 per week.

Employer 2 (using BR tax code) £199.66 Gross per week = £150 NPW. Employers NI in addition to gross salary is £11.48 per week. Total cost employer 2 is £211.14 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.

Scenario 3 - Individual Employers - Converting the total combined NET salary of £300 Net per week to an agreed £181.68 gross per week salary by each employer

Employer 1 (using full tax code 647L) £181.68 Gross per week = £162.40 NPW. Employers NI in addition to gross salary is £9.17 per week. Total cost employer 1 is £190.85 per week.

Employer 2 (using BR tax code) £181.68 Gross per week = £137.60 NPW. Employers NI in addition to gross salary is £9.17 per week. Total cost employer 2 is £190.85 per week.

Using this method, it leaves out the need for requesting a tax code split from HMRC and both employers have the same total cost, and the nanny still has a joint NET amount of £300 per week. You will also note that the overall costs are less than being joint employers. This is because each employer will benefit from the NI threshold of £110 per week, where as with the joint employment the £110 threshold has been apportioned at 50/50

Now the question you are asking is how did we get to the gross salary above. Well of course that is what our service provision includes, being able to calculate in reverse this type of net salary agreement. When you are therefore in the position to know the proportional allocation of salary, we will be able to make these calculations for you. If a tax code split is agreed by HMRC then the procedure would be the same as in scenario two, using the advised split code on an individual basis.