After-school nanny - tax and NIC position

[Clafford]

We met an after-school nanny today to whom we would like to offer the job.

I wanted advice on the tax and NIC position. She'll be working 12-14 hours at £10/hour. My reading of the HMRC page is that because we will be paying her no more than £148 a week (i.e. 14 hours at £10/hour max) and this is her only job, we are not required to pay her tax and NI but do need to keep a record of the payments.

The link is here:

www.hmrc.gov.uk/working/emp-in-home.htm#2

Do I have that right? Presumably, if her hours go up eg for evening babysitting/holiday work so that she earns over £148, then I need to register as an employer, operate PAYE etc. What if one week it's over, but the other weeks that month it's under?

Is there anything else that I need to be thinking about? Do I need to agree paid holiday entitlement, other than paying for bank holidays? It's a first for me.

As it is over £109 - the lower earnings limit for NICs, according to this you need to register as an employer.

If the payment is EVER over the PAYE limit then I think you then have to operate PAYE even when the amount drops back down again.

This is a question you could ask the New Employer Helpline Tel 0845 607 0143 or a nanny payroll company who is used to dealing with HMRC's rules.

Is the pay ever likely to go over the PAYE limit - why the variation between 12 and 14 hours, could you not fix the number of hours to be worked?

Do I need to agree paid holiday entitlement, other than paying for bank holidays?
Yes, all usual employment law things will apply, even if under tax law you do not need to do any income tax deductions. Tax law and Employment law are different things.

They will need a written statement you may be able to adapt Example Nanny Contracts.

Paid holiday minimum is 5.6 weeks, so if they are doing 14 hours a week, it would be 14 x 5.6 = 78.4 hours as a minimum holiday entitlement.
Any bank holidays that fall on a working day you could insist are taken as part of their holiday entitlement. There is no right to time off on a bank holiday, you could have them work on a bank holiday if you needed them to do so.

Things will become more complicated if they are term-time only. Then you may need to use 12.07% of time worked to calculate the minimum holiday entitlement. See page 6 of ACAS: Holidays and Holiday Pay (PDF)

As you are paying over £109 I would suggest you talk to a nanny payroll company like PAYEforNannies to establish what you would need to be telling HMRC and how often. Try to get as much info from the payroll company as you can for free, then decide if you want to pay their annual fee for doing it for you.

Agree a GROSS salary figure not a take-home NET salary. If your employees tax situation ever changes, or there are changes to the tax thresholds (which happens yearly) then the situation may change and you may need to start deducting income tax and national insurance.

Looking at AccountingWeb: RTI Questions one response obtained from HRMC was "From the pay-day which the LEL is exceeded until the end of the tax year every payment made to every employee must be reported under RTI. This 'resets' from the next tax year."

So by paying over £109 you exceed the LEL, so if you have a PAYE scheme in operation you have to report the payment under RTI.

However, as you would not have a PAYE scheme if you go by what was in the page you linked to. However in PAYE BASICS (RTI) it says "As an employer you must operate PAYE on the payments made to your employees if their earnings reach the NICs Lower Earnings Limit (LEL)." It does not say about the PAYE threshold.

At the moment it seems to me that some pages on HMRC website contradict one another, so you really need to ask them.

I wonder if you would be paying under the NICs LEL yearly figure, currently £5,668 a year. That might be the case if your nanny is term-time only though it might be quite close. Something else to ask a payroll company or HMRC new employer helpline.

Thankyou Nannynick for this comprehensive and very helpful reply.