to make our nanny/housekeeper pay tax?

[Happy36]

We have a new nanny/housekeeper who came highly recommended by trustworthy sources.

We agreed her wage. Then she asked if we would change her contract to show a different, smaller amount and pay that smaller value by bank transfer, then the difference in cash. We said we were happy to pay some of the wage in cash if she needed, (with a receipt issued), but that the contract would show the full wage that we pay her. It turns out that if she declares only the smaller, partial value, she pays less tax. So we worked out what she would "lose" by paying tax on her full earnings and said we would increase the gross salary so that she receives a greater net amount, but pays the full tax due.

I appreciate that she is a relatively low wage earner, however given that this is the law I think we are being reasonable here, even generous, also taking into account that the original contracts had already been signed, and now we will need to draw up new ones (at our cost).

However she is clearly annoyed and gives both of us the stink-eye non-stop. She even asked us to pay the new, higher gross value via the tax-dodge she had asked for originally!

How many hours does she work?

My nanny is paid net and I sort er tax under paye. She is an enployee so you would be responsible for the unpaid tax.

I thought you were responsible for it?

And why is she a 'relatively low wage earner'? Pay here more then

You are responsible for paying her tax, you're her employer. It's nigh on impossible for a nanny to be self employed and pay her own tax.

If she is employed by you then you are responsible for her paying income tax through the PAYE system. You are the ones who submit the deducted tax and deducted NI employee contribution together with employer's NI contribution to HMRC.

Unless she is being treated as a self-employed contractor (highly unlikely if she works exclusively for you) you should be paying her net of Income tax.

So short answer if you agree to this both you and she will be guilty of tax evasion. Even if you think it's up to her if you are calculating the NI deductions on only the declared income you will both be underpaying.

YANBU. I run a small business with staff and also have a nanny. Your nanny should be paying the correct amount of tax due on her earnings. You have been very generous to increase her gross salary to give her the net amount she wants. I would personally be a bit suspicious of her if she is continuing to sulk and would definitely be keeping an eye out for any signs of other possible dishonesty/scamming.

Not sure how changing the salary amount of the contract should cost you anything, however. As I understand it, if the original contract has been already been signed by both parties, all you need to do is write and print out a simple "amendment to contact" letter referring to the original contract and stating the new salary amount which will apply. If you like, you can give her two copies with a tear-off strip at the bottom for her signature in acceptance. She can then keep one signed copy and give the other signed copy to you to keep on file with your copy of the original contract.

If she is self-employed she is responsible for paying her own tax and National Insurance.

If... the Inland Revenue finds out that she has not been declaring her earnings properly, and that you have been helping her to evade paying tax, then they will be down on YOU like a ton of bricks and you will have to pay it, and probably a massive fine as well.

sconequeen agree re the contract, no-one's employment contract gets rewritten just because they've got a pay increase.

However it's not clear whether the OP is correctly using the PAYE system to deduct tax.

Well unfortuneately you get into trouble if she doesn't pay tax (& you therefore don't pay employers NICs).

I would regard her in a much less favourable light after all her wheeler dealer-ing and stink eyes! I happen to think if someone is so keen to cheat and lie, then it doesn't instil confidence or trust in them.

I know some people have this weird 'stick it to the man' attitude about tax and are trustworthy to people they see as the same as themselves (whilst enjoying all the services tax pays for), but how do you know if she also thinks you're the big bad employer, and therefore are in 'the man' category in her mental model of the world?

FWIW I've had various arrangements over the years with people and was put in the same position a few times at the beginning - I wised up rapidly though when I realised that i happen to believe in a tax system and heartily dislike when someone tries to pressurise/ manipulate/ sob story me into committing an offense... And then there was a correlation between people being less reliable and less professional when they were avoiding tax. Unsurprising really.

I wouldn't touch someone like that with a barge pole now.

taxi4ballet good luck with telling HMRC a nanny / house keeper is self-employed.

If OP and her nanny think that they then frankly they both should be worried about HMRC finding out.

Miscellaneous as her employer it is up to OP to deduct tax and NI and pay it over to HMRC.

In theory everyone is supposed to declare their taxable income; in reality the vast majority of people are covered by the PAYE system and have no need to declare anything as their employer has already done it.

I'm very uncomfortable with this. We run a dog walking agency so fall into the same type of tax system as child care does. We are all registered as self employed and sort out our own tax and national insurance. I do occasionally get people trying to pay less in total by offering to pay cash, but it really doesn't work that way. Being very pragmatic, we'd have to be earning about five times more than we do before cash would be viably a better deal for us than declaring for tax ni and VAT - quite apart from my social conscience!

I was assuming that she was OP's employee rather than self-employed but, looking again at the OP, it's not totally clear.

I think that it would be very difficult to persuade HMRC that she is self-employed unless, for example, she only does a few hours for you and also has lots of other clients. OP - if you are treating her as self-employed, have a look at the HMRC website for the criteria for being regarded as self-employed to see if she meets their definition. If she qualifies as an employee and you are treating her as self-employed - ie not deducting tax/NI under PAYE - then you could be held liable for any unpaid tax due.

Similarly, as other posters have said, if she is your employee and you are deducting tax/NI under PAYE, if you collude with her tax-saving dodge, you could potentially find yourself in quite a bit of trouble.

Alpacalypse - nanny childcare doesn't really fall into the same category as a dog walking agency as far as HMRC are concerned.
A nanny is employed by the parent, the parent sets the working hours and conditions, whereas in an agency you are offering a service which clients "buy" from you, if that makes sense.

Phaedra, I said 'if she is self-employed', since the OP's first post does not make it clear whether or not she is an employee.

sconequeen yes a nanny/ house keeper is very unlikely to meet the criteria for being self-employed.

Apocalypse what NannyR says is correct. You are offering a service to several customers and you have autonomy over what you do.

I am a nanny and I pay tax - as should everyone!

Sorry for any confusion. We don´t live in the UK so our tax arrangements and also the criteria for different types of employer are not exactly the same.

The nanny said that her previous employer (a colleague of mine) did the same thing and they have admitted that they did and that they have done it for all of their household staff in the past. I asked a few other close friends and it seems to be the norm, however we are adamant that it is wrong and now we are paying her the "extra" so that she does not lose out after paying tax on the full amount it should be a non-issue.

I think we will speak to her again and make clear that there is nothing personal, it´s just that we want to stick to the letter of the law, for everyone´s benefit. She is getting on well with the children and does a fantastic job around the house.

p.s. Thank you to everyone who advised.

Phaedra I was covering bases for employee/ self employed status...

miscellaneous OP has now said she's not UK based

so not much of what anyone said is relevant beyond apply the tax rules of the jurisdiction you live in.

I ditch her for the stink eye thing alone. Wouldn't trust someone that petty with my children.

YANBU. I'd expect her to be embarrassed that you wouldn't go in for her tax dodge scheme.