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Wealth warning - don't agree a net salary with your nanny

Nannying is probably the only profession left in the UK where wages are still commonly agreed on the basis of net (i.e. take-home) pay. But there are considerable financial implications at stake for both nanny and employer.

Nannytax strongly advise all our subscribers to agree a salary based upon a gross wage (i.e. before deduction of tax and employee's NI).

Always agree a gross wage with your nanny or run the risk of seriously damaging your wealth.

When you agree to pay a gross wage with your nanny your total costs are protected, and you will not normally be affected by any changes in legislation, nor will you run the risk of getting lumbered with any unpaid tax from your nanny's previous employment. But by agreeing a net pay you are essentially writing a blank cheque - committing to pay all nanny's tax and National Insurance contributions, irrespective of any changes in the legislation and without taking into account her individual tax code or tax position.

  • There are several reasons why a nanny's tax code can vary from a standard tax code; for instance, if she has two part-time jobs and her other employer is already using up her personal tax-free allowance in their wage calculations, then you, the second employer, must pay tax from the first penny the nanny earns, since the personal tax-free allowance can only be claimed once. Another reason for an unusual tax code would be if HMRC were collecting unpaid or underpaid tax from previous employment.

  • An increasing number of state benefits and tax reliefs are paid through the payroll mechanism as an offset to employee tax and NI liability. Any taxable benefit provided by the employer, such as the personal use of a car, will increase costs if they are based on a fixed net wage.

  • If your nanny has a student loan you will be responsible for paying this if you agree a net salary with her

  • The difference between a net pay and the actual cost of employing a nanny can be staggering (up to 50% more) and may come as an unpleasant surprise, especially to an inexperienced first-time employer.

A net pay arrangement is equally unfavourable to your nanny.

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