Benefits in Kind
Benefits in kind are sometimes provided by the employer in addition to the nanny's salary. They are often taxable benefits and must be reported annually as part of nanny's gross earnings.
Who pays the tax?
Benefits in kind offer a good example of why it is important for a family to agree a gross wage with their nanny. In almost all other types of employment the employee is always responsible for paying the tax on benefits. But as many nannies have net pay arrangements, it means that you, the employer, are responsible for paying this tax, which can potentially be a very expensive experience. Tax on benefits in kind is payable in arrears and is not reported until July following the end of the tax year. Sometimes it can take up to two years before payments are claimed by HMRC, and during the interim nanny can have moved from one job to another, leaving the new employer responsible for paying what can in some cases be a very large sum of money. If your nanny is on a gross wage, however, then the tax is deduced from her gross income at her current rate of tax.
In addition to tax there may also be a Class 1A NI charge of 13.8% of the value of the benefit to be paid - the employer always pays this charge.
Examples of taxable benefits
- Health Club Membership
- Interest Free Loan
NB: Please note that this list is not exhaustive.
Mobile phones are not considered a taxable benefit
Use of Car
The use of a car is not considered a taxable benefit if your nanny only uses it during working hours, for instance to take the children to and from school or to after-school activities. If however nanny is permitted to take the car home and use it as a means to get to and from work, then it must be reported as a benefit in kind.
If accommodation is provided for the nanny and it has a separate front door and separate metering for gas, water and electricity, it is considered a taxable benefit and must be reported as such.