Nanny tax allowance question

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Our situation with nanny is thus:

She works 1 day a week for other family (9 hrs at £10pph = 90 pounds, no tax), she used to work for them for much more hours.
She is with us 3 days a week for 11hrs per day. (total 33hrs = 330 per week)

They are her first employers. We are the second employers.

How should the tax allowance split fairly please?

There is no practical difference in how the payment works - you still pay the net salary to the nanny and the tax to HMRC using the payroll company.

The real difference is that the amount you are obliged to pay her under the contract is a fixed gross rate and so isn't affected by any changes to her tax position. So for example if she gets other jobs that would affect her tax position, that makes no difference to the rate you pay her if you are on a gross agreement. Or if the tax rules change, the amount you pay stays the same if you are on gross. Basically you just don't have to worry about her tax position. Whereas if you have a net rate agreement, you have to constantly fiddle around the actual amount you are paying, any time her circumstances/tax code/tax rules change, in order to keep the net rate the same.

'Everyone else' I knew was either net payer or illegal non-tax-paying. No one mentioned gross when I discussed nanny pay with them. I guess this country is so used to illegals so it's more common to talk in terms of cash amount when it comes to nanny pay. At least in my surroundings.

I guess next step for us is to reclaim and then negotiate gross salary. It's not the other family's fault that the nanny decided to work for us for far more hours, so I don't think either that they should be now paying taxes for this fact. The way the system sucks.((

Picturesinthefireligh, thank you. I'm still trying to get my head around the tax codes split and how they work thing. But it seems like paying gross makes for more straightforward life.

Sorry....can nanny tax company claim back lost allowance on our behalf or has the nanny apply for it herself without the involvement of the nanny tax company? How does it work?

Nanny has to reclaim herself - you can't do it - she will have to speak to HMRC and tell them who she's worked for, since when etc. They will then adjust her tax code so she pays (or rather you pay) the right amount from now on. They will also issue her with a refund.

Nanny pay is often discussed in net terms, you are not unusual to have a net contract. The shift to gross is being encouraged and is slowly happening but net contracts are still common.

I don't think the other family will have to pay tax simply as a result of you shifting to gross salary.

Be warned that HMRC will pay the nanny any overpaid tax due directly. As far as they and she will be concerned its her money, not yours.

It IS her money.

If tax has been overpaid then that doesn't mean the employer has paid too much. The employer has paid the right amount in total, it's just that too much has been allocated to tax and not enough to the nanny's pocket.

One more question...sorry!

If we from now on agree on gross salary.
Say, I give her 12.5 per hour and leave it at that. No more tax nonsense.

How does it affect her pay with other employers? Does it mean she'll have to declare additional income of 90 pounds and be forced to deduce tax from it herself? How does it work?

It doesn't affect her other employment at all

Whenever anyone begins work with a new employer they have to either hand their employer their P45 from their previous job which details their personal tax code & how much they have event so far OR they have to fill in a P46 declaration.

There are 3 options to tick. Most people tick this is my main & only job in which case the whole of their personal allowance is usually allocated to that job

If they earn under the tax limit for that job then the employer doesn't have to deduct anything just keep the P46 on file (though an employer with other employees will stile have to file the returns each week/month)

If someone starts a second job they obviously can't tick that box do they tick I have another job box & HMRC then usually allocates the Basic Rate tax code to that employer regardless of earnings.

If SN employee is still earning under the level they can as mentioned previously apply to have their code split between the two employments.

By "everyone else" I meant every other employer and employee in every other industry. Can you imagine asking your boss to guarantee you a certain take-home pay? As you have found it basically means you agree a salary without ever actually knowing what that salary might be - if the employee has to start paying back a student loan, you will pay it. If her tax increases - you will pay it. If a creditor takes her to court and gets a deduction of earnings, you will end up paying her debts.

pictures - I know the employer can split the tax code, I put that in my first post.
Basically, you need to sit down with your nanny and tell her as she's mainly working for you, you cannot be on a BR code, either she can split her tax code, or you can agree a gross, which would take into account the proper slit in tax (so basically she takes less gross from you).
Or you can just lump it or you can find another nanny - those are the options.

This all seems messy. How about starting the new tax year by agreeing a gross salary with your nanny - if you feel £12.50 an hour is suitable, then agree that if you can.

Your cost will then be: Gross salary + Employers NI + payroll admin and activity costs, mileage etc.
You will still pay money to HMRC but you will be Deducting from the gross salary (employee income tax, employee NI) not paying it on top of the Net wage.

If the nanny won't agree, do you have any other childcare options? Could you change to a childminder for a while?

It's a real pain when people insist on talking in net pay, but relatively easy to work out an appropriate gross equivalent.

You need to agree a gross salary, I would assume a 3:1 split in tax code to reflect the hours. Standard tax code is 944 I.e. 9,440 you can earn before paying tax. So when you're using online calculators to work out a gross pay, I would put in a code of something like 730 which is roughly 3/4 of 944 and then explain to her that you've grossed up the net figure assuming a fair split of tax free allowance. If she wants HMRC to actually split it she can contact them, if not then she will just pay more tax on her income from you but less on her income from them. If her current employer is assuming use of her whole tax free allowance they may have to increase her gross pay.

When I employed a nanny she was working two days a week for another family, they had informally agreed £10 per hour net and the employer was assuming full use of the tax free allowance. I said that I wasn't prepared to subsidise someone else's nanny and she got her other employer to increase the gross pay. She was very keen to get the same amount in her pocket from each employer, so she got in touch with HMRC who split the code for her but it took a couple of months after she started working for me.

We did have a chat and our nanny did lots of appreciative noises that we shouldn't be the one paying for her ever changing tax code. (I wish I was better versed in tax stuff but not too late to start now). So we'll work out which is the gross equivalent (on BR or as first employer).

Thank you so much for the help!

well done OP!