For many parents, when they engage a nanny it will be the first time they have become an employer. We have put together a list of FAQs to answer the common questions people have about the tax, payroll and other general aspects of employing a nanny. We’ve also created a dedicated set of FAQs around auto-enrolment and workplace pensions.
Self-employed people determine their own working hours and must invoice for their services, and are not entitled to any holiday pay or sick pay or maternity pay if they become pregnant. No notice needs to be given to terminate the contract on either side. The person needs to register as self-employed and submit tax returns recording their income and any expenses and pay self-employed class 2 and class 4 national insurance contributions in addition to income tax. However, self-employed National Insurance contributions do not confer the same rights as Class 1 employed National Insurance contributions in respect of benefits or pension entitlements.
Generally, where a parent wishes to use the services of a nanny for specific dates and times, and specifies the terms and conditions, then this will be considered to be employment. A nanny payroll will be required and PAYE and National Insurance deductions will need to be made.
Occasionally, if a nanny has several jobs and there is flexibility of hours, there may be a case for self-employment. On the other hand, maternity nurses tend to be self-employed as they dictate their terms and conditions of employment.
HMRC will generally come after the employer for nanny tax as if the nanny had been employed throughout. It will then be for the employer to try and recoup some or all of that liability from the nanny.
HMRC have clamped down on nanny tax avoidance. RTI (Real Time Information) gives them more information to be able to identify gaps where there are no PAYE deductions for a nanny. If you fail to register, you run the risk of being investigated and being charged penalties. This included interest and penalties on unpaid PAYE and National Insurance together with an additional penalty of 100% of the outstanding nanny tax.
Most Employers (with very few exceptions) regardless of the number of Employees, must automatically enrol their Employee(s) into a suitable pension scheme. This means that Employers and Employees must register with a pension provider from the Employee’s start date. Every Employer is allowed to postpone paying contributions for 3 months from the Employee start date. This is called the postponement date.
The implementation of RTI combined with Universal Credits will mean that all employees earning £123 per week and above (from April 2022) need to be registered with HMRC, even if no deductions are required for PAYE and NI.
A nanny is entitled to a single person’s allowance (£12,570 in 2023/24). HMRC will normally try and give the allowance by way of tax code to one of the employments while giving a ‘BR’ code to the other. This can result in one employer being unfairly penalised when net salaries are being paid to the nanny.
We normally suggest splitting the allowance between the two employments in proportion to the salaries earned in each job. This helps to ensure an equitable split of nanny PAYE between the employments. We can organise this even if only one employer is a client.
Provided your nanny was not pregnant when she started working for you, she will be entitled to a total of 52 weeks leave, with maternity pay (SMP) for up to 39 weeks follow by a further 13 weeks unpaid. You will be required to pay this through the nanny payroll, but the amount can be claimed in advance from HMRC. Your nanny will need to obtain a MAT B1 from her doctor, which is issued after 20/26 weeks of pregnancy.
SMP is payable at the rate of 90% of the gross for the first six weeks, and at a lower rate (£172.48 for 2023/24) for the following 33 weeks. This will be subject to nanny tax deductions in the normal way.
Also, your nanny must not be subject to detrimental treatment for being pregnant. She is entitled to reasonable paid time off to attend pregnancy-related medical examinations within working hours, and for parent or relaxation classes.
Your nanny will be entitled to 52 weeks maternity leave regardless of whether she qualifies for SMP. She can start her maternity leave at any time from the start of the 11th week before the week the baby is due (but she must notify you on or before the 15th week before the baby is due). She can vary the date on which she intends to start her maternity leave provided that she gives you notice of the new date 28 days before the date originally notified.
You must write to her within 28 days of her notifying you when she intends to take her leave, stating her expected date-of-return at the end of her maternity period.
Your nanny does not need to give you notice of her return if she intends to return at the end of the period of maternity leave. However, if she wishes to return at an earlier date, she must give at least 8 weeks’ notice of this. If she does not wish to return to work at all, she must give you the greater notice as per her contract or statutory notice.
Your nanny is entitled to return to work at the end of her maternity-leave period on the same terms and conditions as before. This means that a request to bring her baby to work can be refused. However, she does have the right to request part-time or flexible working. This has to be given consideration but can be rejected on substantial grounds.
