Nannies and tax

[nesomja]

My question is, how many people employ nannies and pay cash in hand without paying their tax? We are just looking into nannies and childminders - for 2 days a week, and everyone we know who employs a 'nanny' - not qualified - does it illegally, not paying their tax. We are realising that if we do pay the tax we just can't afford a nanny as prices seem to be quoted as net and in London people expect at least £8-12/hour net. Before this I always assumed they were responsible for their own tax and NI but I am now better informed...
I feel very uncomfortable about this illegal market but I also feel a nanny would be best for my son.
What do others do?

You won't get anyone here admitting they pay cash in hand, because people here know they'd get slaughtered from all directions. I do pay tax & NI but I'm very much in the minority of all the people I know in London (in real life, that is). Personally I think that if you can't afford to pay the tax & NI due then it shouldn't be an option - but that's just my view. you can always look at nanny shares.

No you're probably right, it's just that as you say, in London I don't know anyone who actually pay tax and NI. Did you quote a net or gross salary then when you employed your nanny? All the possible nannies I have met appear to be working cash in hand at the moment.

All my nanny friends get paid legally - but then all the nannies I know are professional nannies, properly qualified, insured, Ofsted registered etc and stay in their jobs long term. It's a career so they expect to be paid properly.

I suspect people who agree to be paid cash in hand aren't trained and don't really intend to stay in childcare for long, maybe have immigration issues.

As an employer you could end up in deep trouble with a hefty fine if you pay cash in hand. I do agree that those who make a career from nannying want it done properly - we want maternity pay, sick pay, redundancy and our full salary on our payslips as proof of earnings! People treating it as a stopgap won't mind so much about it being under the table but they probably won't stay doing it long, or want to stay under the radarfor some reason.

The people I have met are often students wanting to fund themselves through university - so you're right, it's not their career and they do exist in a shadowy world.However I'm not necessarily looking for someone who thinks of it as a career - most childminders I know don't think like that after all but are doing it for pragmatic reasons.
I guess real nannies are only an option for the rich them - my whole take home salary wouldn't cover an £8/hour nanny with the tax and NI paid and I'm a senior health professional.

I do operate PAYE for our nanny, but tbh I often think we must be in a very small minority. The nanny who has just joined us has always done her own tax and she is taking a (small) pay cut to join us, but then since I'll be paying NI, holidays etc it probably works out more or less the same.

I sometimes wish I had the balls to risk it and pay cash in hand but if I got caught it would be professionally awful for me.

Oh - one thing that might be different, but I don't know - someone once told me that a housekeeper can be self employed. so if you hire someone to look after your house and part of that is looking after your kids there may be a loophole there. Seems odd though, so someone will no doubt tell me I am wrong in a minute!

Yes, paying someone else's salary out of your own is expensive! Though nannies do become more cost effective if you have two or three children though, as childminder or nursery rates x2 or x3 are similar. You could try looking for a nanny share to reduce the cost though, where you share the nanny with another family? Then for instance an £8 net an hour nanny might cost each family £5net (plus tax of course).

Yep you're wrong! It's not the job title, it's what they do, when they do it (their choice of hours or yours), what financial risk they take and how much control they have over their time.

Cleaners can be SE though.

Uni students I find are quite silly - they often don't earn enough to pay tax anyway so a gross salary is a net one for them, they could be getting 3 qualifying years towards their pension by working and they're probably not getting top whack salaries anyway (at least I wasn't!).

I have heard of a lot of people with nannies who pay cash in hand, simply because they can't afford a nanny otherwise (even with a nanny share). I'm not saying it's right.... because it's wrong... but I'm guessing that if no one paid cash in hand, then there would be a lot of nannies out of work and a lot of parents choosing other forms of childcare. Nothing wrong with that, but only very high earners would be able to have nannies and jobs for nannies would be scarce.

Certainly my experience so far of advertising is that no one has expected to be employed legally - the really odd thing I think is the way that the whole tax allowance goes to the first employer - makes it much more expensive to employ someone who already has a part time job.

Not if you agree a gross wage. Nannying's a bit odd as things are still talked about in net, but that's changing. Most people have a gross hourly/weekly figure in their contracts now, and I know a few people who have a gross annual salary.

Agreed Nesomja- when I was advertising recently my former nanny was the only applicant who expected to be legally employed, and she has priced herself out of my market.

Basically I am considering changing jobs, going ft again, doing all the hours I can, just to have some cash over after paying the nanny! Lunacy.

Frakkit - thanks. I couldn't square the housekeeper thing with the Revenue rules. Sounded like bolleaux, but you never know!

Yes, whatever you do agree a gross wage. It will probably be in the nanny's interest too if the tax-free allowance is increased.

Yes, however if nannies start agreeing gross wages, they will price themselves right out of most people's markets (as Haliborange's nanny did to hers).
People will keep doing it illegally because some parents can't afford to pay what a nanny expects in net along with tax/NI and the supply/demand of nanny jobs....etc.

Star - it wasn't the tax that was the killer, it was the £11ph take home that I couldn't stomach. Would leave me with about £300 per month to commute on and eat!

I think that a lot of the cash arrangements are skewing people's perception of nanny pay. The vast majority of the nannies I meet who are on £9+ ph net are not paid legally (or get some of their pay taxed but not all). So when one wants £9 or £10 ph net and to be paid legally suddenly they are asking a lot (essentially, for the mother to be earning in excess of £60k pa and to not mind working just for the sake of it).

If you only have 1 child and don't want a childminder due to school runs or lack of garden space (my reasons in London) honestly I would recommend a nursery.

We have been so happy with DS's nursery and when DD came along we tried to recruit a nanny but decided against it because:

• at a nursery the same carer doesn't have to do the cooking and clearing up
• our home is not as baby safe as a nursery
• nappies and food are included
• you don't have to worry about nanny sick days and holidays and being late to work
• they have proper insurance

We would have gone to the extra expense of a nanny inc. NIC, insurance etc if a nanny had solved all our problems but we felt it actually wouldn't and I personally felt I would have been a very demanding MB, expecting nursery-style schedule and records (which most interviewees didn't seem that keen on).

Mind you, we are very lucky to have had grandmother cover when DS had conjunctivitis for 2 weeks.

As a nanny I've never been paid £11 per hour take home.
In one job a few years back, I was on £7.31 an hour Gross. These days its a little over £10 gross.
I'm about 25 miles from London. So perhaps it's just that London nanny rates are too high?

i'd try for a nanny share, which is what we've done. It makes it more affordable and not too much more than nursery. Some people pay part taxed and part cash but we ultimately didn't feel comfortable with that. You have to consider you professional position too - some jobs have grounds to sack you over such matters if you are found out.

For the record, we pay £10net for a SE London nanny share, split 55%-45% between the families. My three-day out of pocket cost comes to around £210.

The problem is if she is happy to be paid in cash she might ...be on benefits. Are you willing to risk this? If someone makes a phone call to benefit fraud line you will have them knocking your door.

Nanny share or nanny with her own child?

many employers don't pay the tax & NI because they feel that childcare costs should be tax deductible. at least that's how they justify it in their minds.

My nanny was happy to be legally employed until recently when she found out that even if she lost her job she can't claim unemployment benefit because of her husband's earnings. So she's thinking, why did I bother to pay all that tax, i would have been 25% better off if MB didn't insist on a legal arrangement... can't win, can you?

Indeed Micky. And legal bosses are going to be more constrained soon (pensions changes from 2012 increasing employment costs) so there will probably be even more incentive to keep nannies off your books.

As far as I can see the only benefit of employing a nanny legally (apart from the security of knowing you won't get bitten by the Revenue) is that you can reclaim SMP/SSP etc. Although given the amount you might save by not operating payroll this might be a small price to pay.

What about the nannies though, if they are not being paid correctly then they won't get NI stamp paid and won't have tax payments showing on their tax record - would HMRC not get suspicious if someone didn't have any earnings, didn't claim benefits, yet had money going into their bank account?

I agree with you Nick - I would never take a job where my tax and NI wasn't dealt with, but still I have met a lot of nannies who claim to be self-employed, many of whom tell me they self-assess with HMRC. I guess if you are not planning on staying in the UK forever building up an NI record for a pension that will be worth, at most, a tin of beans a week by the time they retire just isn't terribly important.

I think some nannies don't pay their wages into the bank. I paid my last nanny in cash a couple of times (as she didn't want to wait for the money to clear, we still paid tax etc) and she asked me whether it was ok to pay it into her account. Apparently she'd not paid her wages in with previous employers.

It isn't right, of course, but it is not as if HMRC are going to track down every nanny employer who does this and fine them. In fact, I'd like to know how many they do catch a year. I am sure they have way bigger fish to fry.

I still dont get why a nanny would be happy with it thu. Apart from maternity leave and pension, what about getting a mortgage?

If you are self-employed you can still get a mortgage. And you might be paid more, so I can see why from that perspective a nanny might want to be self employed. Plus there's no risk to the nanny; it's the employer who gets a spanking for not operating PAYE.