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Tax and National Insurance | Nannytax

Tax & National Insurance

If you are employed you must pay Tax and National Insurance (NI) on your earnings where due and this includes both part-time and temporary employees. However, legally it falls to the employer to ensure these Tax and NI deductions are made. This is where a Nanny PAYE Scheme comes in.

How does Nanny PAYE work?

All employees in the UK must contribute financially to the state through a Pay As You Earn (PAYE) Scheme. As a nanny employer you must set up a Nanny PAYE Scheme to declare the necessary Tax and NI amounts, each time you pay your nanny.

What should the Nanny do?

Nannies should check that their employer has set up a Nanny PAYE scheme. If they have, the payslips should display the Tax and NI amounts that they are paying to HMRC. There should also be note of a PAYE Scheme reference number. If enrolled in to a pension scheme, the payslip will also display the pension contributions.

Nannies – never assume that you are automatically paying tax. You should ask your employer if you are not receiving regular payslips. Many nannies have fallen foul of this and experienced difficulties as a result.

You must set up a Nanny PAYE Scheme to declare the necessary Tax and NI amounts, each time you pay your nanny.

If you don't pay tax

It’s a criminal offence to not pay the correct amount of Tax and National Insurance. If caught, both the employer and nanny could face a series of penalties. These may include:

• Repayments of any unpaid Tax and NI to HMRC including interest

• Potential fines for lack of payments and also lack of RTI information

• Criminal investigation with a risk of prosecution and imprisonment

Cash in hand

While being paid ‘cash in hand’ may seem nice and easy in the short term, it is not worth the risk of the long-term difficulties. For employers, HMRC are handing out ever-increasing fines and penalties for not declaring tax correctly. The nanny will also lose out on their employee rights such as holiday entitlement, sick pay, maternity pay and redundancy as well as not holding a National Insurance record with HMRC which counts towards their state pension. Additionally, when applying for a mortgage or loan, the lenders will require proof of earnings such as the last 6 payslips.

Nannytax and Nanny PAYE

With our standard Nannytax payroll subscription we will set up your Nanny PAYE Scheme for you. We can then run your nanny’s payslips weekly/monthly and display the tax and NI amounts due to HMRC. Or with our Nannytax Plus premium service we can pay your nanny and HMRC tax/NI liabilities directly so there’s even less on your to-do list. Find out more about our nanny payroll services here or if you’d prefer to talk to someone, one of our friendly subscription team will be happy to help.

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Rates & Thresholds

The current Government rates for the tax year 2020 – 2021 came into effect on the 6th April 2020. Please see our Rates and Thresholds page for the latest Tax and National Insurance rates.