are you exempt from tax and NI if nanny is self-employed?

[mommie]

i am about to employ a nanny two and a half days a week at £8.50 an hour. she says not to worry abour tax or NI because she is self-employed and will do all that herself. Is that right?

How many other jobs does she have mommie? She would need to be working for more than one more other family to be genuinely self-employed. If she is not, you would actually be liable for her unpaid tax & NI. It is definitely a bit of a grey area. I would check with her & then telephone the tax office for advice.

she does work for other families but only as a cleaner

I had this situation with my nanny-she wanted to remain self-employed. The difficulty for you is
a) Nannying is rarely a self-employed position-you ahve too much control over times and days and activities
b) If the nanny does not account to the revenue-and the revenue decide that in reality she is your employee-they will treat the £8.50 as her net wage and wil come after you for tax and ni and employers ni (if you go down this route MAKE SURE YOUR CONTRACT PROVIDES FOR AN INDEMNITY FROM YOUR NANNY IN THIS EVENT
c) If the revenue do investigate and decide that this is an employment situation-whether she has paid her tax or not you could be ordered to back pay employers NI for the period that the nanny has been self-employed and you may receive hefty fines for failing to pay this at the time etc

Make sure she gets something in writing from her tax office to confirm that they will allow her to be self-employed.

You are on shaky ground, I'm afraid. I assume £8.50 is gross. You are not responsible for paying her tax, but you are legally obligated to take it out of her pay cheque. And you are legally obligated to employers tax. Seek advice from nannytax.co.uk. They have a very helpful website. Nannypaye is cheaper and offer a good payroll service, but they are not as knowledgable about employment law.

And, above all, check with the Inland Revenue that you can hire her for two days a week on a contract basis. I doubt you can. If you could, then I could get together with two other families who employ nannies and we could swap half way through the week, and then none of us would have to pay the nannies' taxes. We could start a nanny rotation section of mumsnet. We'll swap them around and everyone will avoid taxes.

I'm joking of course!

mommie, do you think she is currently paying tax & NI on the money she earns as a cleaner? If you suspect that she is just going to pocket the cash/cheques you pay her then that is a risk you have to take. If the tax people catch up with her, it would most probably be you who would be liable to pay the tax & NI she owes - not her.

i will need to talk to her; TBH, it sounded quite simple but it has suddenly got complicated. i just don't want the hassle of becoming an 'employer'

Well, I'm afaird youcan't hire a nanny in this country without becoming her employer. Believe you me if I could avoid it I would.

If you want to avoid the tax, maternity pay, etc. liability, what about getting an au pair / childminder combination where the au pair get them ready in the morning, does the childcare/school run, and maybe some household chores like laundry, and possibly occassional babysitting. You wouldn't have to take the childminder on as an employee, and the aupair doesn't cost an arm and a leg.

i think the nursery 5 days a week is the only option; we don't have a spare bedroom for an au pair. at the moment dd goes to nursery 3 days a week. i just felt 5 days was a bit excessive, and i could nor find a childminder who would keep her til 7pm when i get home from work.

Ah, I have that problem too. I have a nanny. What is it about hiring a nanny that scares you off?

I think nannys can be self-employed if they work for two or more employers - I know people who have done this. We were going to do a nannyshare with another family who were both lawyers and the nanny was going to work on a self-employed basis and I'm sure it would all have been above board. Like chipkid suggests, I would make sure you see something from the tax office to ensure that is the case.

mommie, I wouldn't like to advocate this, as it is of course, illegal. However, as a statement of fact - there are loads of people who pay occasional child carers cash in hand - just as they do their cleaners - and no one is any the wiser.
One of my former aupairs used to do a 12 hour day for a family on the two days I didn't need her and she was paid cash in hand - £70 for each day.

Oh Bugsy2, you are braver than I am. I thought of saying that but thought no, the mumsnet police would soon be here to pulverise me. It's true though. I was talking to a nanny just last night about this. She said she had two other job offers that both wanted to pay her completely cash in hand when she accepted the job she now has (which is not cash in hand).

uwila - being a full-time working mum and just trying to cope with the child care issues that that raises means i don't want to get bogged down in the bureaucracy of being an employer myself and having all the responsibilities for a nanny. bugsy2 - i know loads of people like this too.

Well, I would definitely say that having a nanny has made my life easier not harder. In fact I can't even fathom giving it up.

NannyL has explained very well on the other thread about nanny Vs nursery why you cannot have a self-employed nanny. Also, it's all very well for the nanny to accept being paid in hand but where does that leave you/her if she becomes ill, pregnant etc and ends up with no entitlement to state benefits because she has paid no tax or NI? I think there are lots of parents who would happily not pay tax and NI for their nanny but it's illegal and just not worth the stress. I have a Hungarian nanny (not an au-pair) who I think would be happy being paid cash in hand but she is driving my children in my car on my insurance and I wonder to myself what position I would be in in if she had an accident and was found to be working illegally? I also don't need the pressure of wondering if IR are going to descend one day and demand access to my bank accounts etc to determine how I have been paying her.

I was under the impression a nanny could be self employed if you were not her only employer. Personally I would do what others have suggested and talk first to her, to ensure that you write up a contract that is very clear that SHE is responsible for her tax and NI. I would also then tell her you need to speak to the tax office to ensure it is OK.

Looking at Nannytax it does mention self emplyed nannies at the bottom nanny tax

However look here too as it says they can't be!! a real complicated area.

BTW doing the tax retruns for a nanny is not that hard tbh, the Inland revenue allows to do simplified tax returns which are a simple form you fill in once a quarter. All you need do is set an hourly rate, then they will help you (tell you) how much you need pay each week/month for tax and NI. Once you know the weekly/monthly sum then you only need pay quarterly. It took DH about 1/2 hr once a quarter to do it.

crunchie it is a really grey area. She would need to have more than one other "client" family, as otherwise she is just an employee with two jobs, because it is the family who are dictating the terms of her hours etc. So a nanny who just does short term jobs would be fine as she has lots of different client over the year, but a nanny with two regular families over a long period of time wouldn't qualify to be self-employed.
Also, it is not enough to write into a contract that she is responsible for her NI & tax - if she is legally an employee, then the tax office will be after her employer for the unpaid tax - not her.

Think the confusion comes from the fact that it was briefly possible for nannies to be self-employed but that loophole was closed in the budget last April I think with immediate effect (or the year before maybe??) As others have said, believe us, if there was a way to avoid paying tax and NI plus net wages out of income that is already net of tax and NI, we would know about it! If you decide to work it cash in hand, that is entirely your business of course - and if you can get nanny to sign a waiver that pays up if you get caught, so much the better.

a waiver is only as good as the nanny's bank balance. The most you can get is an indemnity in the event that the IR come after you for unpaid taxes. It goes without saying if the nanny doesn't have the money to indemnify you with,the indemnity is worthless! You will be seriously out of pocket

Nannies tha only work for a family for a short while - max 6 months i think CAN be self employed but the rest of us have to be employed. It used to be the case until about 3 years ago when they tightened the IR?? rules up that a nanny could be self-employed.

Here is the IR guidance on self-employed vs employed!

IR56

BTW - if you do not pay NI and PAYE on behalf of your nanny (if she is deemed to be employed) then you will be liable not only for the back taxes but also to a hefty fine!

re the bureaucracy - it's really not that bad - you pay an agency about £150-200 a year and you don;t have to do anything. they calculate all the tax, send you payslips, etc. And don;t be frightened off by maternity pay - it doesn't cost you ANYTHING (unless you are more generous that the state) In fact you make money out of it - they pay you a couple of hundred quid for the inconvenience.

It is worth noting about half way through the leaflet, that the self emlpoyment question have to be answered in respect of each job the person has. It says it is perfectly possible to be 'employed' in one job and 'self-employed' in other jobs you have at the same time.

Reading the self-employed and employed questions - there is no way a nanny on anything like usual terms could be deemed to be self employed!

As others have said, the forms take about 1/2 hour work every quarter and at the moment there is a £250 rebate for filing on the net!