Is nanny bonus supposed to be tax punitive?

[TaxAdviceNeeded2015]

Name changed for details.

We paid our nanny a bonus worth net £1500. Office workers get a bonus, so why not a nanny too, especially for being brilliant? We are not rich for a employer of nanny, but employee is an employee.

Next? Extra 750 tax bill for the quarter. Just for this bonus. We expected basic rate but not this amount.

I questioned the payroll who only said that because it is weekly pay+ bonus = total week pay well above the basic rate.

Really? It suggests if we split the bonus over several weeks it would have stayed the basic rate.

We do not want to be put off paying her bonuses/gifts :(

office workers get taxed on their bonus as well. It is income after all

Definitely not 750 tax bill for 1500 bonus. It looks a bit much. Her salary is basic rate, so annual salary plus bonus is still basic rate. So there is a lot about tax I do not know but our payroll is pure administration and is no advisor.

I am no tax expert but I think PAYE works that that bonus gets taxed as if she gets paid that amount every month, and then she'll be able to claim the tax back at the end of the tax year. Don't see why it puts you off paying whatever you want - you pay her gross, her tax hit is her problem

The tax system is not designed to work with net salaries, and you have left yourself very exposed to unexpected tax bills if you have agreed a net one. Hmrc can mess up on the tax code, or recover previous underpayments through the tax code, and you will end up footing the bill. Any overpayments of tax will be paid to the nanny, and not you.
However, if your nanny has a standard tax code, ending in an L, the higher rate tax this week will result in reduced tax payable in subsequent weeks until it evens out.

Time to change your payroll company to one who will give you proper advice.

But it was £1500 net.

So if you add back the additional tax cost, the gross bonus was in fact £2250. Tax and NIC due on this of £750 sounds about right for basic rate tax plus employee's NIC (I'm assuming there was no additional Employers NIC as you won't have used up all the Employment Allowance yet in this tax year). Else it would have cost you even more!

Going over the basic rate amount for one pay period shouldn't make any difference unless she has a week/month 1 tax code. Otherwise you calculate things on a cumulative basis anyway.

Employment Allowance does not apply for employers of Nannies, so there would be Employers NI as well as the employee deductions for NI and Income tax.

What makes up that extra 750? I would imagine it is Employee Income Tax, Employee NI and Employers NI.

If you break those down, then what percentage of the Gross bonus is Income Tax? Employee NI is likely to have been 12% on some of the bonus (up to the Upper Earnings Limit then 2% on the rest). Employers NI is likely to have been 13.8% on the entire amount of the bonus.

Yes, this is right.

You're giving her a net bonus so the grossing up of that amount is the killer.

Never pay net!

And remember that even if you pay gross, you pay employer NI at 13.8%, and that alone is £207 on a gross bonus of £1,500. Always ask your payroll provider to give you the figures in advance so you appreciate the actual cost to you of making any kind of additional payment.

Not advising this as illegal but many nannies get cash bonus ............

But if doing the proper way give a gross bonus

I have never had a £1500 bonus, your nanny is very lucky. Mine have been a couple of hundred.