Nanny shares have enough sensitivities without getting entangled in tax issues. The tax issues when there is one employer are difficult enough, but here’s what happens when there are two or more…
The treatment of nanny shares for tax purposes is a question of fact and not choice, and is dependent on the type of nanny share being operated.
Where two or more employers use a nanny concurrently or if there is any common time where the employers share the nanny
- The nanny share is treated as one employment.
- The tax and NI is calculated on the total income paid to the nanny by both families.
- The total gross income will be subject to deduction of the single person’s allowance (£192 per week) and the exemption for NI (£153 per week).
- One PAYE scheme is opened and should include the names of both employers. This is so that the tax liability becomes a joint liability and one employer does not carry the total responsibility for settling the tax and NI liabilities.
- If the nanny is sick for more than 3 qualifying days she will be entitled to one lot of SSP.
- If the nanny becomes pregnant she will be entitled to one lot of SMP. This is calculated at 90% of salary for the first 6 weeks and £138.18 per week per employment (or 90% if this is lower) for the following 33 weeks.
Where the nanny works for different employers for different days of the week
- Each employment is treated separately for tax and NI purposes
- The income from each employment will be subject to tax and NI
- There is only one single persons allowance available between the employments. In order to deal with this in the most equitable manner it is strongly suggested that the allowances are split between the employments in proportion to the salaries paid in both employments. If this does not happen and one family assumes all the allowances, the second employer will end up paying tax on every pound of salary paid to the nanny whereas the first employer will not pay any tax on the first £192 per week of the salary.
- The decision to split allowances is technically that of the nanny and once a split is agreed a letter must be sent to the tax offices in question signed by the nanny applying for the allowances to be split. It should be noted that where the two employers who often do not know each other, cannot agree on an amicable split, this puts the nanny in a very difficult position as she is often made to take sides.
- The total gross income per employment will be subject to deduction of the exemption for NI (£153 per week) provided the employers are not connected and so the total NI costs can work out cheaper than when the nanny share is only one employment.
- If the nanny is sick for more than 3 qualifying days per employment she will be entitled to SSP in each employment. The weekly amount of SSP of £87.55 per employment is divided by the number of days worked for each employment to arrive at a daily rate. (The number of qualifying days for SSP should ideally be defined in a contract of employment.)
- If the nanny becomes pregnant she will be entitled to SMP from each employment. This is calculated at 90% of salary for the first 6 weeks (and therefore is not affected by the type of nanny share as the total income will be the same) and £138.18 per week per employment (or 90% if this is lower) for the following 33 weeks. Therefore the nanny under this arrangement benefits from two lots of maternity pay. If she returns to work for either employer before the maternity pay period ends, she will lose any further entitlement to SMP from both employers.
The above information is correct at June 2014 and the content has been checked and agreed with a former National Insurance Inspector and Consultant to the Institute of Payroll Professionals.
