Paying Tax and NI for a nanny
All employees must make Tax and NI contributions, including temporary or part time employees. Employers, including domestic employers, legally have to make Tax and NI deductions from a nanny's wage and pay this to the government on the nanny's behalf.
How does it work?
- All employees in the UK are obliged to contribute financially to the state through Pay As You Earn (PAYE).
- Both Tax and National Insurance is deducted every time the employee is paid, throughout the year.
- The employer is responsible for making those deductions and paying what they have collected to HMRC on your behalf.
- The family or families a nanny work for are responsible for operating a PAYE scheme for them.
- The famliy deduct the Tax and National Insurance a nanny owes from the nanny's gross earnings.
- The family then pay this to HMRC on the nanny's behalf.
- Check that they are registered under a PAYE scheme.
- Keep a record of their payslips every time they are released.
- A payslip will show how much Tax and NI a nanny is paying to HMRC, as well as their individual tax code, pension contributions and their net (take home) pay.
Important: Never assume that tax is automatically being paid by an employer, especially if regular pay slips are not being given. Many nannies have fallen foul of this and have experienced difficulties as a result.
When tax is not paid
It is considered a criminal offence to not pay the correct amount of Tax and National Insurance. If caught, both an employer and an employee could face a series of penalties. These may include:
- Repayments of any unpaid Tax and NI to HMRC including interest
- Potential fines for lack of payments and also lack of RTI information
- Criminal investigation with a risk of prosecution and imprisonment
Cash in hand
While being paid 'cash in hand' may seem nice and easy in the short term, it can create long term difficulties for the following;
- Statuatory rights, including Sick Pay, Maternity Pay and Redundancy
- Applying for a mortgage or loan as lenders require proof of earnings. Often the last 6 payslips