Many parents quite understandably want to avoid the hassle and cost of running a payroll, so they encourage their nanny to accept ‘cash in hand’, and leave it up to her to declare her own earnings. Some nannies are more than happy to do this as they think it makes them more employable, or that they can negotiate higher pay, or they simply don’t trust their employers to get it right.
Unfortunately, in 99.9% of cases this just isn’t a legal option. HMRC clearly categorises this type of work as employment, not self-employment, and places the responsibility firmly on you as an employer, regardless of your nanny’s circumstances elsewhere. By law, you must be registered as an employer and make quarterly tax and NI payments, even if she only works a few hours a week.
What if my nanny is already self-employed?
Your nanny may already be registered and paying tax and National Insurance correctly via Self-
Assessment. This will be the case if she works as a self-employed childminder in her own home, or runs a separate, unrelated business. It does not mean that her relationship with you is one of self-employment. It simply means that she has more than one source of income: employment and self-employment.
Every employer is required by law to deduct tax and NI from their nanny’s pay
It is also quite possible that your nanny has been treating her income from nannying jobs as self-employment. If the previous employers have not made deductions at source, the nanny will have no choice but to declare the income via Self-Assessment (or report the employers for non-compliance). This does not change your position; every employer is required by law to deduct tax and NI from their nanny’s pay.
Rarely, a genuine case of self-employment may arise. For example, if a nanny were to specialise in settling newborns and therefore flit from job to job. If you think your case may be exceptional, you must use the employment status indicator tool on the HMRC website to determine the nanny’s true status. The tool is anonymous, and provides a useful insight into the difference between employment and self-employment. For example, a self-employed person will typically (but not always) be paid per job of work, whereas an employee will normally be paid an hourly rate or salary.
HMRC’s anonymous Employment Status Indicator tool will give you a definitive answer:
But who’s going to know?
You could be reported for non-compliance by the nanny herself, particularly if she leaves under a cloud, or any number of people who she tells. She might be friendly with the neighbour’s nanny, and the neighbour bristles at having to pay nanny taxes when you don’t.
It’s not just HMRC that could be on your case. You might receive a solicitor’s letter requiring payslips, a P60 and/or a P45. And if the nanny becomes pregnant she will no doubt demand Statutory Maternity Pay (SMP). HMRC will fully-fund this if you have her on a payroll, but if not, you won’t get any help whatsoever.
What are the penalties?
If you are caught out, as a first-time employer, you might be lucky and be granted a little leeway by HMRC, but there can be penalties of £100 per month for late submission of payslip information. And if you are also late paying over the tax and NI deducted, you are likely to be charged a percentage of this too. In short, the quicker you sort the problem, the less likely you are to incur additional charges, and the better protected you and your nanny will be.
NannyMatters specialises in nanny payroll and employment. If you are employing a nanny, it can set you on the right track and backdate your payroll records if needed. It’s also happy to give free, confidential advice to any parent worried about their situation. Just call 01275 464425 or email email@example.com.