MIL to give up work to look after DD - we need to pay but should we pay cash or treat as 'employee' ?

[summermummy]

..moral & legal dilemma.

My lovely lovely MIL is going to give up work to look after DD when I go back to work (FT) because I tried settling DD into nursery and found it too difficult. However MIL is close to retirement and needs the money as she is trying to top up her pension contributions before retiring so we are going to give her the money we would have paid the nursery. I had assumed we would treat it like employment in financial terms as its quite a large amount of money (£1,000+ per month or £13,000 lump sum) to ensure she pays her NI contributions.

However my sister is adamant that we should pay cash and she should just pay a lump sum to top up her NI.

Its not actually employment, shes just DD's granny and we won't be able to use any childcare vouchers etc - we are simply paying an amount of money so that she can look after DD like many other grannies do.

What would anyone else do ?

Did I forget to say that my MIL is LOVELY!

There are implications to this. If she has your DD in her own home, and you pay her, she has to be registered with the council just as other nonfamily CM are.

I'm not sure of the position if she's in your house. You might be better off doing a link from the CM/nannies/au pairs threads to get some proper info.

Thanks serenity - shes going to look after DD at our house (her house is tiny and she'd prefer to keep it as her space which is fair enough!).

Durr - I don't know how to do a link..I'll see if anyone finds it and if not post again tomorrow.

There are tax implications as well as NI, so, you need to look into it properly. Also if she is your employee, you will also have to pay NI on what you pay her - between 7% and 9% on top. Maybe one of the nanny websites would have some advice

Hi - yes very aware of tax!...my plan was to use nannypaye to do it all but my sisters point is that we should pay cash or lump sum in some other way.

I've never avoided paying tax in my life but must admit once sis had got me thinking, its odd for DH and me to pay tax for his mother looking after her granddaughter. My own mum is going look after DD every 4th week to give MIL a break but this is just because she's granny to DD and good friend to MIL but as she doesn't need the money the situations suddenly completely different (my parents live too far away to do it full time).

Would a lump sum work better eg. My Dad gave me £10,000 to help us buy our first house but it wasn't taxed...could we just give MIL £10,000 for the year ?

Hi - yes very aware of tax!...my plan was to use nannypaye to do it all but my sisters point is that we should pay cash or lump sum in some other way.

I've never avoided paying tax in my life but must admit once sis had got me thinking, its odd for DH and me to pay tax for his mother looking after her granddaughter. My own mum is going look after DD every 4th week to give MIL a break but this is just because she's granny to DD and good friend to MIL but as she doesn't need the money the situations suddenly completely different (my parents live too far away to do it full time).

Would a lump sum work better eg. My Dad gave me £10,000 to help us buy our first house but it wasn't taxed...could we just give MIL £10,000 as a gift ?

If she looks after your dd in her own home then she does not need top be registered as a childminder. There is an exemption for close family members.

There was a debate on this a while ago (on here or another site can't remember)and I actually telephoned the people in charge of this to double check (my mum looks after my children in her own home)

It would be easier for you to do this as any cash you gave her would be classed as self employed income. She would have to declare it and depending on the amount, pay tax and NI but you would not be eligible for employers NI contributions or holiday and sick pay.

If this all takes place in your home however and money is involved I am not sure of the situation employment wise as this would be classed as nannying and the loopholes for self employed nannies have been closed, they have to be employed unless your Mil set herself up in business and had the right to do things like change the hours she had your dd or send someone else in her place (not likely with any type of nanny never mind family ones!!!)

As far as I am aware there is no reason why your MIL should not look after your child in your home free of charge, and no reason why you can't give her a lump sum gift.

I don't think its really a moral dilemma - many people would think it was normal for a family member to look after children, and equally normal to contribute to a family member's financial welfare, but wouldn't connect the two.

I am not sure of the legal tax situation - I think that if you were for instance paying her £1000/month by Direct Debit it would look as though she was receiving an income from somebody, but I don't know how they would prove that this was in return for child care.

If I were you I would probably just phone the tax office and ask whether there was any tax on gifts between family members. I have phoned them for advice before and they were very helpful.

I'm sure there's a way you can give her the money as a 'cash gift' rather than a salary - you may be able to pay it directly into her pension (if that's where she wants it).
I'm not 100% sure on the tax implications of this, but I do know that FIL pays cash straight into DH's pension at the moment, basically as a means of giving him his 'inheritance' now and avoiding death duties. I think there's an annual limit on cash gifts of this kind but it's higher than you'd think.