Basic nanny/tax question!

[louloubelle]

I am looking to employ a nanny a couple of days a week, will be wanting her to take home about £11 an hour. When I register with a nanny tax company, do I effectively pay her tax and NI, ie instead of me paying say £220 a week cash to her, I pay give or take £250 and she takes home the £220 from that?
Sorry, I want to do it properly but need a little guidance!

Nope - you give her the net amount

HMRC send quarterly demands and you pay to them directly

The nanny tax company will send you the payslips so you can se both gross and net amounts and the paperwork for the tax bill

We do a bank transfer for our nanny of the net amount and transfer the NI and Tax amount to another account foe when the bills arrive

The nanny wants £11 take home pay per hour, working 20 hours per week... is that right? So £220 net per week.

Do you know what their tax code is... probably not. It could also change at any point. So how can you do Net pay?

You can use a payroll company and tell them that you want to pay someone Net and get them to work out the Gross figure each and every payroll run. The nanny payroll companies have computer software that can do that. It is not something you could do yourself very easily.

You nanny could have a BR tax code for this particular job. This would be due to them using all their personal tax allowance in another job - which may well be the case if they are only working 2 days a week for you... there are another 5 days they could be working for someone else.

So you could work out the worst case situation and thus know roughly how much to budget for in terms of payroll cost.

Does the nanny have an outstanding student loan - ask that question, as if they do repayments for that are taken off at source, so DON'T agree a Net wage.

Using www.mranchovy.com/calc/ you can get some figures for your likely costs. Note that the figures may be a little different when it comes to doing the payroll run and will certainly be different come next financial year (so from April 2012).

So figures I am entering into the PAYE calculator:
11 Net per hour, 2 days per week, 20 hours per week, tax code BR, student loan NO.

Result as Yearly figures:

Gross Salary £15,595
Income Tax £3119
National Insurance £1004
Net Pay £11471
Employers NI £1176
Cost to Employer £16771

Do you see how the cost to the employer figure is calculated (Gross Salary + Employers NI). You will then have other costs to add on top, including Payroll Admin charge (typically around £135 a year).

You pay her the Gross Salary, from which you deduct Income Tax and National Insurance (you put those aside in a savings account). Also add the Employers NI for that month to the savings account.
You give your nanny a payslip showing the deductions made and pay them the NET pay - the figure which is left after the deductions from the Gross salary (Gross - (Income Tax + National Insurance))

Every 3 months (per quarter) you send HMRC the Income Tax, National Insurance and Employers NI. The payroll company will tell you when to do that, how and how much money to transfer.

If you were to agree a Gross salary you could do the payroll yourself. However even then you may prefer to pay the admin charge to have someone else do it for the first year whilst you get to learn how it's done.

Please try to agree a Gross pay figure with your nanny. That way if there are any changes to the nannies financial circumstances you do not take the financial hit.

You can not be sure of what the nannies tax code will be.
You may or may not know about any student loan or any other deductions at source.
Your nannies personal tax allowance may change in 2012 (it will to my knowledge) which with a Gross pay agreement your nanny gets a bit more money in their take home pay. In a net pay agreement you get to pay a bit less (so you may feel this is a reason to negotiate net pay) but I still suggest against as I don't feel the benefit outweighs the drawbacks.

Your nanny could be earning nearly £15 gross per hour... that sounds rather high to me -are you central London?

instead of me paying say £220 a week cash to her, I pay give or take £250 and she takes home the £220 from that?

Are you thinking it will cost you around £250 a week? I make it nearer £322 a week. Bit of a difference. Even if this was their only source of income (thus can use the personal tax allowance) the cost to employer I calculate at £274
With it being a 2 day a week job, you can't be sure it will be their only job.

Thanks for the comments. Don't get me wrong, I want to be above board, just want to clarify in my mind whether I pay her gross and she does the tax etc from that (ie HMRC are informed and request tax from her, but essentially I pay as you suggested £15 an hour for her to take home about £11 and she sorts out the tax) or I pay her £11 an hour direct and pay HMRC directly on her behalf (plus NI etc). Agree it is high rate...she is setting up a business not to do with nannying and needs a job to fund it, hence tax band etc is up for discussion. No student loan, not on any benefits as far as I'm aware (have asked, been told categorically no).

You don't have option to pay her £15 direct as she is an employee so obliged to operate Paye and nic .

You pay her gross, but take out her tax and NI before you give her the cash. So if it's £15 gross, you set up as an employer with HMRC and give her payslips outlining the tax, NI, and her net pay, and then give her the net. How much you take off her for tax depends on her tax code.

Also £15 gross may not include er's ni which may be on top

You pay them via the PAYE system. So you deduct employee income tax, employee national insurance on your nannies behalf and send that to HMRC along with your employers national insurance payment.

Decide how much you feel they are worth paying for the job which they are doing for you. Then offer them that rate of pay. If you are happy with £11 Net per hour then it's fine to agree to that... though I do suggest you agree a Gross pay figure which calculates out at around £11 net dependent on specific circumstances (so if the circumstances change it won't then be £11 net but you as the employer don't start paying more money overall).

If it is their only source of income then £11 Net per hour is around £12.85 gross per hour (assuming 747L taxcode). So you could agree a Gross figure of £12.85 or rounding up if you so wish to £13 per hour. Note: Employers NI on £12.85 per hour (20 hours per week) is around £17 a week / £873 year.

Do have a play with MrAnchovy's PAYE Calculator.

Thankyou all for your help, I am now clear in my head! I will pay a gross figure that calculates out at about £11 an hour.