Due to the increase in nanny wages and changes in the way parents return to work after having a baby, many families are finding it more cost effective to ‘share’ a nanny with another family.
Sharing the cost of a nanny
What is nanny share?
Essentially this means that your nanny has another job running concurrently with her employment with you. Normally this creates little or no concern to an Employer however in the nanny industry things can be a little different.
The two jobs can run alongside each other, or they can overlap, depending on your agreement.
Sharing the cost of a nanny
In the UK an individual has a personal tax code (1257L in tax year 2023-2024). This code means that they receive just over £12,570 tax free each year via PAYE. After the tax-free allowance is used up each week/month we then have tax bands, a percentage of income that is deducted.
If a person has a second job however, the Income Tax in that second job starts at the 20% band leaving out the tax-free allowance as it is assumed the primary Employer will have already used it. For a second Employer paying a net salary (i.e., the parent picks up the tax bill) this will mean one family pays a disproportionately higher tax bill than the other.
For example, if you pay a nanny £250.00 per week net using a full tax-free allowance (and a standard pension on qualifying earnings and the statutory minimum percentages) you can expect costs of around £18.45 per week on top of their net wage. If you pay the same salary with no tax-free allowance this increases the costs to £101.54 per week, a huge increase.
The task that NannyPaye aims to help you with is finding a mid-point that is fair for all employers and the employee involved.
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Sharing a nanny, like everything in life, has its
Pro's and Con's
- Friends for your child, who will feel like siblings
- Reduced nanny costs for Employer’s
- Nanny is there to take care of sick children
- Motivated employee due to higher overall pay
- Lower mileage rate if shared with other family
- Lower Ofsted costs if shares with other family
- Reduced Pension liability due to lower wages
- National Insurance allowance per family means lower NIC costs
- May have to agree holidays with another family
- Can be hard to find a family to share with
- Increased risk of infections/contagious diseases
- There may be less flexibility for overtime/changing days
- Potential tax liability issues if agreeing a net salary
How can we save you money?
When two families share a nanny, by each having a seperate PAYE account and each paying the nanny and the taxes themselves there are thousands of pounds to be saved between the two employers.
Nanny share options
When organising a nanny share NannyPaye is aiming to achieve a fair result for all parties concerned. This may be two or more families and of course the nanny.
To achieve this our first step is to move the proportions of tax-free allowances away from a 100% allocation to one employer and distribute them pro rate between the employers involved. By doing this each employer has at least some of the tax-free allowance that they can use before paying 20% tax on the nanny’s pay. This is obviously not as good as being the only Employer and having 100% of the allowance but it is also far better than being classed as the second Employer and receiving none of the allowance.
The next move is then to decide if you wish to:
(A) Stay with your net agreement and NannyPaye can give your nanny advice on how to split the tax code with HMRC. Unfortunately, we are not able to split the tax code for her as HMRC will only allow the employee themselves to do this.
(B) Note the new gross wage amounts and revert to a gross agreement that leaves your nanny overall with the correct net pay. Each family’s cost would remain the same as if you had a tax code split in place.
The two options in detail:
Option 1 - tax code splitting
Many nannies start with a net wage with their Employer’s because they want to understand what they are being paid, with nanny shares being no exception. To keep the Employers’ costs at a reasonable and fair amount your employee can apply to HMRC to put in place the split tax codes we calculated during the above process.
This means that you can keep paying your nanny the same net wage and the taxes will be calculated using a pro rata amount of the tax-free allowance.
This has the obvious benefit to both employer and employee of being straightforward and easy to manage. Unfortunately, this does involve your employee contacting HMRC to request a tax code split which can be very difficult.
In most instances HMRC will now refuse to split the tax code, this happens because HMRC do not recognise net pay agreements and so long as the nanny earns at least the tax-free allowance in one of the jobs then there is no requirement for them to split this.
Option 2 - changing to gross
To avoid the need to involve HMRC in splitting tax codes Employers can choose to change the agreement they have with their nanny to a gross basis, set at the gross salary that they would have paid should the tax code split have been implemented. This option fixes the Employer’s costs fairly and so long as all Employer’s of the nanny fix the fair gross salary then the nanny will take home current net overall (it will just be apportioned differently between the Employers).
For example, your nanny’s net wage may have been £250.00 per week net, with a proportioned gross of £296.32 (total cost of £318.35) due to 40% of the tax-free allowances being allocated to you (based on the 2023/2024 tax year standard code of 1257L being split).
The other family may have an agreement on £375.00 net and £465.86 gross (total cost of £516.38), based on 60% of the tax allowance in the 2023/2024 tax year, splitting the 1257L tax code. The Employer’s involved can now choose if they wish to then fix the pay at the gross amount and simply apply the normal 1257L and BR tax codes to the pay (1257L is the standard tax code for the 2023/2024 tax year).
This then has the effect of:
· Employer 1 - Pays more to the nanny and less to HMRC.
· Employer 2 - Pays less to the nanny and more to HMRC.
Overall, the nanny will receive the same total net pay amount of £625.00 per week and the employers have the protection of a gross agreement and fair costs.
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