I've been doing it wrong all this time, help me put it right.

[needtosortthis]

I work p/t from home and have an amazing MH who comes 2 days a week to my house.

95% of the time she looks after my child while I'm in the house. She will sometimes take my child for a walk/to the shops in the buggy.

She occasionally does sole charge for the day if I have a meeting and she has babysat too. I trust her implicitly.

But we currently have no contract and I pay her cash in hand.

Yes, I know this is wrong so please don't all shout at me at once, I'm trying to fix it!

She has another job for 2 days which pays her an official taxed salary on which she pays NI and she is taxed on that. She is a single mum and I would like her to get as much of the money I am giving her as poss - what's best way to do this?

thanks in advance for your help with this.

I think legally you have to give her a contract within two months of her starting work for you, so you need to organise that as soon as possible.

As for the tax, I'm not sure what you mean by her getting as much of the money as possible. Did you agree her wage as a net wage? If that's the case then you'll need to pay her tax, NI and your NI on top of that.

Are you paying her more than minimum wage?

Thanks for reply Missus

Erm, she has been with me for considerably more than 2 months

I agreed her wage (which is well over the minimum btw- phew) as net.

So what do I need to do now?

Write a contract.

If you agreed a net wage, then you need to pay the tax and NI on top of that - so she'll still be getting the same pay but it will cost you more. You could do this yourself or you can use a payroll company like Nannytax to do payroll for you.

Here's some info about registering as an employer
and about what to include in a contract

Getting things sorted won't be too hard. You need to contact HMRC New Employer helpline and tell them that you have taken on an employee. They will then send you out all the paperwork, CD-ROM etc. Get your MH to complete a P46 which will then give you the starting tax code to use. You will need a Gross salary as your starting point... so come to an agreement with her with regard to what the Gross salary will be. It must be equal to or above National Minimum Wage. Then just start doing the payroll on a monthly (or weekly) basis. P49 describes how to do the first payroll run.]]

calculator.kistax.com will give you a very good estimate of what Gross salary would be based on a Net salary and tax code. Use taxcode BR for a 2nd job. Do not use it for completing the paperwork... you need to operate PAYE using the method provided by HMRC (or by approved accounting software).

Contract wise, take an example contract - you could perhaps adapt an example nanny contract - modify it to suit your needs. Holiday entitlement is 5.6 weeks... so if working 2 days a week, that is 11.2 days holiday (this can include bank holidays that fall on a working day). You can't round down the holiday to 11 days, you can round up and indeed extend to anything you like. Keep in mind that some Bank holidays fall on days other than Mondays.

If she has been working for you already then she is working to a verbal or inferred contract. Since it isn't written down then she is entitled to receive a written statement that details the job, benefits etc. This is normally what needs to be issued within 2 months of her starting with you.

If she is a single Mum and trying to maximise her earnings then she probably won't thank you for registering her employment if you then start making deductions from her pay packet (assuming she already utilises her tax free element in her other job)..

As Missus84 states, if she continues to be paid the same salary as net pay, then you will pick up the extra costs of paying her tax and NI deductions, and paying employer's NI contributions for her.

You will need to send off a P46 that details how much she has already earned from her first job over the last tax year.

When you register as an employer, you will be sent a pack that includes a CD that has various tax and NI calculators, and will need to make monthly declarations on line and transfer all payments to HMRC. I believe all these calculators are built in to a web site now where it is all done on-line.

"If she is a single Mum and trying to maximise her earnings then she probably won't thank you for registering her employment if you then start making deductions from her pay packet (assuming she already utilises her tax free element in her other job).."

That's what I'm worried about:

Am I right in thinking that if someone "shops" us in this situation we can both get into trouble??

Is there any way I can officially pay her less than I am now for tax purposes and then give her some kind of a bonus?

The bonus would also be subject to tax!

Personally never agree to net pay, but if you have then you have.

If someone "shops" you then you'll be in trouble, not her, its your responsibility. There is a large fine, and depending on your job, it could affect your employment. (Not wanting to scare you, just because you asked.) I think its great you want to sort things out officially now, and there are some good links above.

You'd be in trouble I'm afraid. You only thing you can do now is keep paying her the same net wage, and you take the hit on tax and NI on top.

You could ask her to move the tax free allowance from her other job (which is presumably using it up) to you. She would need to write to the tax office to allocate tax codes to the 2 jobs. That way, if say you were paying £8 CIH, you could agree that to be officially £8 gross and won't have to pay tax if your total pay is within the tax free limit (NI will have to be calculated separately!). The total tax she is paying should be the same and if the other job is paying her at a gross rate, then the other employer's total spend would be the same (more of it would be paid as tax). Whether it's worth doing really depends on the exact financial circumstances.

The MH would be worse off though wouldn't she? Can't see the benefit to her of doing that.

of course MH's take home pay would go down, but we're talking about options for the OP. tax would be deducted properly, and the OP wouldn't have to change the amount she pays out (except maybe NI, a different issue). It works if the other job she has has been agreed in gross.

If the OP has agreed a net wage with the MH though, why would the MH agree to having her take home pay reduced?

Even if the other job is paying her at a gross rate already, the fact they 'enjoy' her tax code means the amount of employer NI contributions they need to currently make will be cushioned by her tax allowance.

Switch it over to you having the tax free element (or sharing it although not come acrossthat before) and presumably then the other employers costs will go up as they will have to pay more in employer NI contributions.

Is she an employee or is she self employed when she works for you? For example, most cleaners are self employed and the tax issue is for them to sort out iyswim.

Does she get a set number of days off?

Do you pay her holiday pay?

Does she get sick pay (even if it's SSP)?

If you agreed her pay as net, a way round it might be to up her pay to the gross amount but have a contract with her that states clearly that she is self employed when working for you and has the responsibility for declaring/paying tax etc herself.

If the OP has agreed a net wage with the MH though, why would the MH agree to having her take home pay reduced?

So that she could be legally employed? MH may well not agree to it. I'm just thinking of possible options for the OP that she could look into.

Treesa - agree NI could be a complication. Again, it's just an idea that OP could consider further.

Unlikely that a MH would qualify as self employed IndigoSky. Sounds like she's employed by the OP.

To sort this properly you need to deal with the back-payments of tax and NI, not just pretend that she starts work for you tomorrow. This could amount to a substantial sum, but it is unlikely that HMRC would seek to impose any penalty for a voluntary disclosure where there has been no attempt to deceive.

I do recommend that you seek professional advice from one of the better payroll agencies who should be used to dealing with catch-up registrations (try www.payefornannies.co.uk) and should charge you a lot less to sort it out than an accountant (providing you stay with them to run the payroll properly of course).

Again the thing with earnings from another employment on a P46 - you must be confusing this with a P45 which you get when you LEAVE a job.

And NI has nothing to do with tax codes or personal allowances. NI is payable on earnings over £110 per week in each job separately.

Maybe I am confusing P45 and P46. We took on an au pair who had been working already in the UK in a hotel but hadn't been given a P45 from her previous employer. She also had another job at the weekend. I'm sure we had to fill in a P46 and Iseem to recall having to ask her what her earnings had been to that point and how much tax she had paid for this form. Maybe I'm confusing the two forms here..