Is Mr Anchovy about? Or any other nanny tax knowledgable people? Splitting tax code advice needed!

[PassTheCremeEggs]

I have a nanny for three days a week. She works for another family for the other two.

I agreed a gross salary with her of £12ph. First payslip in - whole thing taxed at basic rate because other employer is using the whole of her personal allowance.

Other family pay her net () £11ph. Because they are using her allowance, she only gets take home from me about £8.50 an hour when we estimated it would be just under £10ph based on a £1000L tax code.

Payroll company says she can split her code between us. If she decides to do this, her other employer is going to be paying a lot more tax to pay her the same net wage and I'm concerned this is going to cause problems for her with them. But if she doesn't, she's going to lose out in her take home pay from us.

What should I do?? Any advice gratefully received! Also I need an easy way to explain all of this to her because she doesn't really understand and I'm terrified we're going to lose her over it because she's not getting enough take home

Don't split tax code would be my advice. Would be up to the nanny if they did want to do that and they would need to get HMRC to agree to it.

You agreed a Gross salary with her, so you have done the right thing.
As she has another job which is using the personal allowance, the taxcode for your work is BR... that's right.

Why are the payroll company suggesting split tax code?

Gross pay agreement makes no difference to how much it costs you to employ your nanny - your cost is Gross Pay + Employers NI. It saves you nothing by splitting the tax code.

Is the payroll company confused about who they work for - they work for you, so should be doing things to minimise your costs. So gross pay agreement, monthly pay, is the best thing to do.

Your nanny DOES NOT lose out.

Income Tax is done over all jobs as a whole.

So if the first job was £12,000 gross and the second job was £10,000 then:

Job1: £12,000 (A)
Job2: £10,000 (B)
Total: £22,000 (A+B=C)
Personal Allowance: £10,000 (D)
Taxable Pay: £12,000 (C-D=E)
Income Tax: 20% of £12,000 (as total income is under £31,865)

Do NOT follow the payroll companies advice - I would sack them!
Why are they not telling you how tax works and how having a BR tax code makes no difference overall to how much money the nanny gets in total.

Hmrc are likely to split the tax code themselves, depending on her total level of earnings.

Since RTI they are much more on the ball with things like this and tax code splitting is their preferred way it seems. It's less likely to cause them (Hmrc) additional admin you see

May be feeling irrational dislike of Her Maj's atm due to looming January end

Not your fault that other employers have offered net to gross salary. They'll learn the hard way to never ever do that!

I think I'm suggesting she splits it be because:

Employer A pays her £11ph net. She gets £11ph take home and they pay tax on top. Because they have whole allowance, they don't have to pay very much. Her take home is unaffected by how much tax they have to pay because they agreed net.

Employer B (us) pay her £12ph gross. Because we have none of her allowance, a lot of that is deducted in tax.

If employer A gives us 3/5 of her allowance, she gets a lot more take home from us. They still have to pay her £11ph net so her take home from them is unaffected.

The result is that she gets more pay overall.

I agree that if Employer A had agreed gross there would be no change, just a shift of which employer pays which amount of tax. But it seems to me that because Employer A has agreed a net figure, the additional tax is shouldered by them and our nanny gains more net pay from us.

Or have I got this totally wrong?

Definitely not your fault the other family have agreed Net.

TheGirlFromIpanema - what would cause HMRC to recode the income tax, assuming that the primary job is using all the personal allowance? No claiming pension or paying student loans or any other complications? Is it not easier for them to have one job as coded, other as BR?

PassTheCreamEggs, keep in mind that HMRC can issue a coding notice at any point, thus why it is vital to agree a Gross salary. You have done the right thing. Your nanny needs to understand that overall they get the same amount.

Employer A would get a larger tax bill.

Lets say they were doing 30 hours a week, 1000L taxcode.

30 hours at £11 net per hour = £330 net.
Gross amount on that is £402

If taxcode changed to: 445L (I have no idea what sort of coding it would be)
Then £11 net per hour, 30 hours = £330 net.
Gross amount on that is £433

Employer A because of agreeing a Net wage has to pay more of the nannies taxes.

It is Employer A's problem if the coding is ever changed but that is what happens with a Net Wage Agreement.

Nanny would get more take home pay but it comes at a cost of Employer A, so that employer will not be happy.

Yes that's exactly what I'm saying. I'm concerned because our nanny doesn't really understand it, and she's worked for the other family for 4 years, that she'll somehow blame me! Because other employer definitely not going to be happy. But you've confirmed what I thought which is that it is to our nanny's benefit to split the code.

Of course the nanny gets more take home if the whole of the pa is applied to the gross rate job. If I was the nanny I'd be asking HMRC to adjust my coding to that. Other employer has agreed net pay so they have to bear the cost.

I would leave things well alone and let nature HMRC make it's own decisions. If/When HMRC make a change it is then nothing to do with you, or the nanny.

Nanny does not want to annoy the first employer, so they would not be wanting the code changed. If they want more take home pay, then it comes at the cost of upsetting EmployerA.

Taxaid: Paye Two Jobs - this info may help.

Nannynick, I wish I knew the answer

but I suspect that there are far more cases of overpaying PAYE when a full code and a BR code are in use. This means Hmrc often have to process refunds after year end etc.

This is only my guess but at the moment nearly all BR codes for second jobs are being split. I guess as they have the info much sooner these days they are able to split far more accurately. (I do lots of payrolls for business which have mostly p/t employees; pizza shops, bars and the like - meaning lots have other jobs too)

OP - yes you are right. She will be better off if the code is split. Although I realise not if she's out of her job soon though, after they realise their costly mistake! (They couldn't - could they )

Just do your normal payroll and Hmrc will sort it out. Assuming you are all on-line and RTI'ing?

Do you know how many hours she does for the other employer?

Unless the hours are below 18 hours a week for EmployerA then I don't see a problem coming in April when the personal allowance increases to £10,600. As their gross salary is still above £10,600.

There could come a time though that due to it being a 2 day job, the tax allowance is not used up. Tax allowance tends to go up each year. Maybe it will keep doing so, or it may stay the same or could go down.

TheGirl - thanks... Now that RTI is active for all/most, I can see that they have more accurate data so could try to get out of the refunding situation that can occur. It will cause havoc to any parent with a nanny on a Net pay agreement. Hope nanny payroll companies do warn parents of the problems with Net wage agreements.

Just do your normal payroll and Hmrc will sort it out.
Yep, I agree. Just leave HMRC to be the bad guy.

I'm not a nanny but the tax man split my tax code when I rang up to stress all over him about being put on 40% rate on my second job.

It's better for her to do that than just get rebates surely?

I know nothing about nannying though

gamerchick - I would assume that none of your employers agreed to pay a Net wage, so changes in taxcode does not change the total cost to the employer. The problem in this case I think is the Net wage agreement. If that was not there, then I don't think the problem would be either.

PassTheCreamEggs - if you can get your nanny to understand how tax works, maybe try to get them to agree to a Gross pay figure in their first job. Then come April when the tax allowance goes up, they get more take home pay.
As things stand, in April nanny will get the same pay as they do now... they won't get the £600 extra on the personal allowance as it will be absorbed by the first employer.

The last few years HMRC haven't been splitting tax codes. Interesting that they're agreeing to it now.

I agree just leave it to them to sort. It makes no difference to what you pay out.

Nanny understands that her first employer will be paying more and that this will be a problem for them, yes? She doesn't think HMRC are somehow giving her more money?

They are actively doing it now Schlafen. They have more info these days with all their new on-line systems for reporting so I guess thats why

Yonic I think the problem is that I understand this, but she doesn't really. I'm trying to set it out so she understands that to get nearer the rough net figure she had in her head from our employment she has to allocate part of her personal allowance to us, which will result in a tax rise for her other employer. She has worked for them for a long time and won't be that keen on rocking the boat in that way. But I am worried she doesn't understand why her take home from us is quite a bit lower than she anticipated. I think her other employment is only has about 12-13k so most of it is tax free currently.

Ah, so nanny had wanted a certain net wage and however they had calculated that is not what they ended up getting - is that the issue?
So their calculation was wrong somehow, such as not taking account of the personal allowance being used completely by the first employer.

So you or she called the payroll company and they mentioned the split tax code thing. Which would increase her take home pay from your job but it affects the cost to employer in the other job due to Net Wage Agreement.

Not sure what you can do. Maybe just try to explain that all her income is looked at and she is taxed on all the income above the personal allowance.

Exactly nannynick

You have done nothing wrong. It's the other family and nanny who agreed nett and therefore the nanny will have to earn less salary from other family

I wouldn't increase your salary.

Yes you risk losing the nanny but ..........

I agree that HMRC seem to be splitting tax codes more.

Last year the company I work for employed a student in the holidays. He already worked for another company so was put on BR. After our first Full Payment submission LP & behold we were issued with a 500L coding notice!

I employed a nanny who was in a very similar situation and I said from the start that I wasn't prepared to subsidise her other employer. She went back to them and negotiated a gross increase to maintain her net rate with them. She had said that if they wouldn't do that she would leave (them) as she realised that no-one would be happy to subsidies another employer and she wasn't prepared to take a hit on the net rate. We agreed a net rate, but I put gross in the contract assuming half of the tax free allowance. She was very keen to split her tax code so every year in April she rang HMRC and hassled them until they agreed. They don't like doing it.

This is not your problem so don't get involved. Offer her a gross salary and explain that if she wishes to split her tax code it is between her and HMRC - that would mean she gets a more equal amount of money from each employer - otherwise she will get more from one and less from the other but it is a tax issue. She needs to understand that the more you earn, the more tax you pay proportionally.

I agree with letting hmrc be the bad guy. If she asks why her pay with you is so low, just explain that her other employer has all the tax free allowance. If she wants to move it over, she can ask hmrc (or they might make a change themselves).

I haven't read all the thread. But I had two jobs last year. Job one 8 hours and job 2 12 hours HMRC just wrote and split the tax code when I started job 2. No one asked. Was @ 50/50
Didn't make any difference to overall tax I paid.

Agree gross pay always. Employers who agree net pay are idiots IMO ,if you are taking on the responsibility as an employer you should understand the basics of taxation.
Ultimately the Nanny's tax code is her business only.