Nanny's Salary - Can I pay Tax & NI just on the minimum wage part of the salary?

[munteria]

hi there

I am looking into childcare options. with tax and ni on top the hourly rate per hour it make it very expensive! a friend mentioned i could just pay the tax & ni on the minimum wage element of it i.e. pay it on the 5.80 an hour rather than the 8 to 10 pounds an hour.

has anyone else done this?

thanks

no you can't, you have to pay tax and NI on the full amount - anything else is illegal, and leaves you liable to a large fine. You also have to pay employers' NI, so it's important to have a full picture of what you need to pay before making a decision.

This is not legal, I'm afraid, and while you might find a nanny who will agree to it if you get caught the fines are not funny.

You need to either agree a net salary with the nanny and pay tax and NI (both employee and employer NI) on top for the whole lot.

Or - my preferred solution - agree a gross salary with the nanny and dedut tax and NI from that. You will still have employers' NI to pay on top but at least it feels like a more paletable headline figure IMO!

Nannies are v expensive - perhaps you should look into a share?

no-one who has done this will have done it legally. it could be argued that by declaring part of the salary, rather than none, you are more likely to get challenged by the Revenue as you will be on their radar but i don't know if this is really how it works. the penalties if caught are quite high - £3000 I think. Neither I nor any of the nanny employers I know were prepared to risk it (even those without moral objections ot tax avoidance).

Your nanny will also be unable to get full earnings related benefits or mortgage reference. I don't know of any nannies who would accept this.

I can't believe you're even thinking of this. Please tell your friend you don't need any more illegal and amoral suggestions!

Childcare costs, that's how it is.

thanks! the people that do it must have strong nerves if it's illegal!

i didnt realise i had to pay employer's ni on top of the tax and the regular ni! on an hourly net rate of 9 pounds an hour - how much would i be looking at paying on top assuming a single person's tax code?

thanks

p.s. i have 2 children - 7 month and almost 3 yr old. could i get a nanny share to make it 3 children in total, perhaps another baby?

My 3rd old would be at nursery every morning during term times. would a nanny look after 3 children?

Lots of nanys work for three children families so I don't think that would be a problem necessarily. I think you do need to think about the balance of ages and the individual child's needs because you will be paying for this care as will the other parent and it will be quite complicated. YOu could look at lots of options though - is nursery fulltime for both of them to expensive? What about doing a nanny share for the afternoons for your 3yr old whilst the baby goes to a childminder all day. You could arrange that the nanny will fill in with the baby in an emergency. You could look at a childminder for both children? Also are you going back full time? With the cost of childcare does it pay you to do that - might it be better to look at part time hours?

I think it should be possible to get a nanny to look after 3 children, especially in the current market. My old nanny went to a number of interviews where employers suggested the tax dodge thing (she said no, unsurprisingly), and so I suspect that if you are above board (and perhaps pay a slight premium for the fact that it's a share) you might get someone pretty good.

You could ask some of the nannies on here what combination of ages in a share would work the best. I reckon 2 three year olds might be easier than a three year old and 2 babies, but don't know.

The costs of employing a nanny seem to work out at about 40% over the net pay rate. So a nanny who earns £400pw net will cost his or her employer £580 pw. Ouch.

hi there

thanks for all these suggestions. i am going back 4 days a week - my boss wont let me do any less than that!

nurseries are just as expensive around here, plus hours are limited. i will look into childminders which will be cheaper but more hassle as have to do drop off and pick up - getting myself out the door to work is trouble enough. hey ho. it isnt easy going back to work is it......

so basically you want to fiddle the tax

tel your firne is is ILLEGAL

this could lead to a £3k fine and even possible imprisonment

YOU would be to blame - not the nanny

unfortunally there are nannys who will do this, as they cant get a job that pays the amount the want, so will do cash in hand

which then makes many employers think that it is ok to do this

i was asked years ago and said no, i asked if they would take less gross wage for their job - they said no - i replied, why should i

munteria- have you looked into this properly? you become an employer by taking on a nanny and all that goes with it. have you got your head round holiday entitlement and pay and sick pay and contracts etc? notice periods, redundacy? it's no walk in the park.

Hi there

I havent looked into it properly but know it is a big commitment. i will do some more digging. i will prob need to go for a nanny share but i wont do anything illegal!

Where are you located? 9 per hour net seems a bit high to me for a typical nanny outside of London.
In Surrey, nannies working 40+ hours a week are from around £6.50 gross (for someone without prior experience) to £10 gross, possibly £11 or £12 gross for someone super experienced.

If you were say to pay £9 net per hour for a 40 hour week, then using ListenToTaxman that works out to be a Gross salary of roughly £24343 assuming a typical tax code - which is about £11.70 gross per hour. Employers NI is about another £2385 a year, if this salary.

Please don't do things this way around. Don't agree a Net Wage. Only agree a Gross wage, as doing the PAYE is really tricky otherwise (payroll companies use expensive software to do the Net to Gross calculations, such as Sage Payroll). Agreeing a Net wage also opens you up as the employer to paying more money when tax codes change.

To help give a comparison, lets assume it's 40 hours a week and you pay £10 gross per hour. That then is £20800 gross salary per year, Employers NI is around £1931.

munteria - tax calculator here - as it says it's not definitive but pretty accurate.

Blondes - you forgot to mention that as well as the £3k fine and possible prison term, they will also have to pay back all of the tax that they neglected to pay in the first place, so on a wage of £350 nett per week, over a year the tax would add up to around £7.5k.

A lot of money to find with the fine on top.

There are a lot of things to think about, if you and your nanny fell out, she might 'dob' you in, once you had parted company, if your nanny knew all about it, it would not affect her, it is you as the employer that must pay tax, insurance and employers insurance.

Having said all of that, I know a hell of a lot of people who do babysitting/overtime, cash in hand!!!

hi there thanks for this. i am based in south west london where i have heard that the average salary is 8 to 10 an hour (net). thats good advice about agreeing gross but a lot of nannies i speak to have only talked about net. i suppose i could talk about gross then let them know what it would be gross for them, as thats really what they are interested in....

p.s whats the employers ni contribution as a percentage worked out?

Munteria - I tell the nanny the gross wage (which is what is put in the contract) but then give her a '' and on a normal tax code that will be xxxxxx net'' figure.
No idea on employers NI as a percentage - I used to work from the tables on nannypaye.co.uk

Employers NI: 12.8% on everything over £110pw. I use this calculator to work things out, although it won't do net to gross, you have to use trial and error.

With the increase in degree qualified nannies it's definitely better to say it's X gross which on a normal tax code is X net. That way you don't suddenly find yourself paying back their student loan too!

Someone posted about that (paying a nannies student loan) recently... can't remember who but certainly goes to show that such a situation CAN happen.

think that was frannie

great. thanks ladies. very useful. x

munteria - one important reason for agreeing a gross salary is that (just like every other employee) it is then the nanny - and not you - that takes any tax changes. for example if you were to increase her hours, having agreed a gross hourly rate, her net hourly rate would, in effect, decrease - she would be paying proportionally more tax per hour iyswim. you would be paying the same amount per hour however much she worked. this is exactly the same as for everyone else. if, however, you had agreed a net rate she would expect that same rate for the extra hours - and you would end up paying more per hour because you would be shouldering the extra tax. agreeing net rates can also get tricky should she want to take a second job and her second employers wanted a share of the tax free allowance