Nanny tax - confused re allowance when 2 jobs.

[vicks71]

I'm recruiting a nanny at the moment - part-time. Still a few interviews to go but I have a question about the favourite so far (which will actually apply to whoever gets the job really).

I'm looking for someone for 3 days a week (approx 25 hours). This particular candidate has just been recruited for another job on the other 2 days of the week so in that respect it's perfect. What do I do about tax though? The other job is to start in August, and mine would start at the end of August/beginning of September.

As she will start for the other family a few weeks/a month before us, will they "nab" the whole of her tax-free allowance? Or does it automatically get apportioned once she takes on 2 jobs? I have no idea how it works.

I've been doing my calcuations on Mr Anchovy's tax calculator but this is with the 810L tax code. I've just been reading on another thread about the BR code (which makes the overall cost much higher). Is that the code that she'd be on if she shared a job? Is that the code that would apply if we weren't benefitting from her tax free allowance? What determines her tax code?

As she hasn't started the other job yet, is there anything I can do in advance to help my situation - ie so that she is set up in a way that splits the tax code. Not even sure if it works like that so apologies if I'm not making sense.

It may already be too late as she may already have set up her tax with the other employer (or they could be paying cash in hand for all I know - that's not my problem though - or is it?!)

I know that the way to avoid a problem is to agree a gross rate. Inevitably though, nannies talk in terms of net. We discussed her rate at the interview and she said £10 (meaning net). I said that that was fine but I guess I'm not tied in absolutely to that - i.e. if and when I make an offer, I could say that because she has 2 jobs and I don't want confusion re her tax code, that the offer on the table for her is £12 gross (that's roughly what £10 net for 25 hours over 3 days works out at on the 810L tax code - I need to check what that would mean to her if she was on the BR tax code though).

Any help in navigating this would be much appreciated!

You are right about the gross figure - it is irritating when nannies still talk in terms of net, it's misleading. However, I think it best to work on the gross salary as if it were a full time (50 hour?) week, not your 25 hours.

If she were to get £12/hour gross from you and also her other employer for, say, a total of 45 hours a week, her net rate will be less than £10/hour.

As she will start for the other family a few weeks/a month before us, will they "nab" the whole of her tax-free allowance?

Yes, she may well give them the P45, thus would complete a P46 for your job (more about p46 here including link to download one) and depending on what the nanny completes on that form will give you the starting taxcode to use for payroll.

HMRC may issue a coding notice at a future point to tell you to use a different taxcode.

I've just been reading on another thread about the BR code (which makes the overall cost much higher). Is that the code that she'd be on if she shared a job?

If she ticks box C on the P46 to indicate that she already has another job, then you will start doing payroll at BR code.

As she hasn't started the other job yet, is there anything I can do in advance to help my situation - ie so that she is set up in a way that splits the tax code.

I'm not sure if splitting tax code is done that much these days. MrAnchovy with luck will see this and be able to explain if having a tax code split would be beneficial - I think a tax code split is only useful if you are paying below the PAYE threshold. He wrote in 2009 that "tax code splits are a real pain".

I know that the way to avoid a problem is to agree a gross rate.

Yes. Definitely agree a Gross salary.

Inevitably though, nannies talk in terms of net. We discussed her rate at the interview and she said £10 (meaning net). I said that that was fine but I guess I'm not tied in absolutely to that - i.e. if and when I make an offer, I could say that because she has 2 jobs and I don't want confusion re her tax code, that the offer on the table for her is £12 gross (that's roughly what £10 net for 25 hours over 3 days works out at on the 810L tax code - I need to check what that would mean to her if she was on the BR tax code though).

Discuss it with her, then write the Gross amount in the contract. £12 gross sounds about right. I make it £10.10 Net (810L), £8.86 Net (BR) - 25 hours per week over 3 days, no student loan.

Thanks for the advice. I just rang a couple of nanny paye companies and they both suggested code splitting - interesting that you say that that isn't doing very often and is a real pain.

Also, one said that even if she started a job with her other family first, I would end up being the main employer and so in theory, the 810L code would apply to me (though it's fairer to split it) - though obviously in the first month or so that she had a other job, then the other employer would get the benefit of it. Does that make sense?

Have you contacted Nanny Tax? They are fab and will probably be able to sort it all out for you

I wonder by both payroll agencies recommend split tax code. Did you perhaps tell them you were agreeing a Net wage?

I'm just a nanny, not an accountant. So maybe the accountants are right... or maybe MrAnchovy will be along later to explain all.

I told them that the nannies (and I) and been talking in net wages so far, but that I might have to steer things around to agreeing a gross figure. It seems like such a tricky one though - whatever anyone (paye companies etc) advices - the reality is that most (not all!) nannies talk in net terms.

You can't gross up a part-time job using the whole personal allowance. If it was 40 hours a week at £10ph net that would gross up to £12.92 so I would say £13ph gross is what you should offer her.

It is an inevitable consequence of our tax system that the translation between gross and net pay is not simple where there are two jobs. Tax code splits are an attempt to pretend this is not the case, and are therefore fundamentally flawed - as soon as one employer gives a pay rise, or changes their hours, or pays a bonus, the split no longer achieves the intended result. However because of the motivational effect of receiving less money in your bank account from one employer than the other, it can sometimes be the best arrangement. From a payroll agent's point of view it is a small bit of work - a couple of standard letters - but it secures two customers so is worth doing :)

The alternative would be to sit down with her with my calculator and show her how much money she will take home for a given amount of gross pay in each job in each scenario (you with 810L/other employer with BR, you with BR/other employer with 810L, both with 405T) so she can see it is the same.

Hi, sorry to revive an old thread but I have the same problem as the OP. Our nanny is starting 4 days a week for us at the end of October, but will also be doing a one day a week job which starts in September.

Stupidly I have already made an offer, and been accepted, at £9/hr net (which is what she asked for). I had done the tax calcs on the assumption we would be the only employer and was happy with the gross figure that gave. I hadn't thought about the effect of her other job . It will be a lot more expensive for us if her one day a week job uses up all/most of her personal allowance. I'm happy to only get the benefit of 4/5 her personal allowance but it seems unfair to get none of it...

What can I do? vicks did you ever find a solution?

minipie - her one day a week job may not use up all of her personal tax allowance, you can but hope. Initially the taxcode may be BR but it may change during time. Are you using a nanny payroll company? They may have suggestions for how to help resolve the problem but I suspect any solution would involve the nanny having to ask HMRC for their tax to be split between the jobs.
To avoid future problems, could you agree a Gross salary with them?

Thanks nannynick. I will be using a payroll co though haven't signed up to one yet.

I will be meeting our future nanny again shortly. Would it be ok do you think to raise this issue with her, explain the potential effect, and suggest that we agree a gross rate? (I think about £13/hr works out about right but will ask the payroll co). that way she might be able to agree the same with her one day a week job... Or is it too late to do this?

I would raise it with her and get her to agree a gross rate. That way in April when the tax rates change, she will get more pay probably (as tax allowance tends to go up rather than down).

Talk to the payroll company about what figure would be sensible to agree. £13 gross sounds too high to me. Maybe nearer £11.

Perhaps show her this which is from one of the nanny payroll companies and says that net pay agreements are going to be difficult now with the new payroll system. Could give you a good reason for asking her to agree to a gross wage.

Also show her this from HMRC which says that in 2014 (so from April 2014) tax allowance will increase, to £10,000

Doing some calculations, I think that if her total income this year was £20,000 net then that's about £25,265 gross.
So using that same gross figure and changing the taxcode to 999L (so a tax allowance of £9995 I think) then her take home pay increases by £110. If she has a net pay agreement, there is no increase.
Not sure I have explained that well but with the tax allowance going up in 2014, she won't benefit from that if she agrees a Net wage. So another incentive for her to agree to a gross wage.

Talk to the payroll company now... and see if they are even able to do a net pay agreement. May be wise just to tell her that you have looked into it (and you will have by then as you will have contacted the nanny payroll service) and say that you need to agree a Gross salary.

Problem is, you don't know what her taxcode will be. Maybe you need to pick a gross figure you are happy with, such as £11.25 or a bit more. That I think would be about right for what the gross figure would be if they were only working for you and getting £9 net.

Probably too late to do it for her one day a week job but it could be agreed upon by that employer as well, so she would then benefit from changes to personal tax allowance. However as it is a one day a week job, it may be paying below the tax threshold and thus the family may not be registered as employers and operating PAYE.

I would avoid getting involved with any matters concerning the other family, it's simply not your issue. Up to the nanny to deal with her tax affairs.

The key thing for you is that you need to be able to budget how much having a nanny will cost and you can't do that if she requires a net wage as the tax code could be anything. So try to get her to agree to a gross wage, which would work out to be about the same as the net amount she wants.

Thanks so much! Yes that all sounds sensible, funnily enough I had just found that nanny payroll page nick.

as you say, I think the best approach is to say gross wage agreements are a) recommended by hmrc/ payroll cos and b) better for her as you say nick, at least for 2014 with the allowance increase.

sounds like you don't think it's too late for me to raise this, which is good!

so is it reasonable to calculate the gross rate based on what it would be if I was her sole employer? i can work that out fairly easily i think. but that would assume we'd get the benefit of the whole personal allowance... which isn't really right as we should only benefit from 4/5... and if the other family do the same, the nanny would lose out wouldn't she? Though as you say what they do isn't my problem...

ah, ok, I think I was coming up with a higher rate because I was including the employers NI contribution. which is part of the cost to us, but not actually part of the salary. is that right?

Not sure what it is reasonable to calculate the gross rate on, that is what the payroll company can hopefully advise. I don't know what the tax code would be if it was a 4/5 split. Personally I feel it's ok to use 944L as the taxcode to work out an example figure as that is what someone who was only doing your job would most likely be on.

Yes, possibly you included the Employers NI, which is dependent on the gross salary.

I would suggest coming up with a figure you are happy with, then tell them that if their tax code is 944L then it works out as x amount Net, but if their tax code is something different then it will work out to be less.

Thanks - I think I will do that. I don't really understand tax codes but presume 944L is what it would be if she was only working for us. I'm happy to offer a gross rate based on 944L plus a bit.