What are nanny shares and how do they work in practice? Åsa Nilsdotter from Nannytax, experts in all things nanny, tells you how.
Sharing a nanny with another family is more common than ever and if it’s done right it can not only be a very cost-effective childcare option, it can also have many other benefits – especially for the children. But there are several potential pitfalls along the way to that harmonious nanny share.
Nanny shares are where the nanny works for more than one family; in effect she has two (or more) part-time jobs. Part-time employment is of course just as common in other professions, but what is hardly ever seen outside the nanny industry is the tradition of agreeing a salary on a net basis. This practice can have serious implications even in full-time employment, but in a nannyshare a net-wage agreement is an especially bad idea and it can prove to be very costly for the employer.
Nannies (like all other employees in the UK) are taxed according to their tax code, and whilst most nannies are on a standard tax code only one employer can use the full tax allowance. Any subsequent employers must pay tax on their nanny’s salary from the very first penny she earns, and this can be costly. For instance, if you have agreed to pay your nanny a take-home salary of £275 and her tax allowance is used up by another employer your decision to agree a net salary will end up costing you £40 extra per week.
But the nanny may not even be on a standard tax code. If she has unpaid or underpaid tax from a previous employment this will affect her tax code. Another reason for an unusual tax code would be if she is paying back a student loan. By agreeing a net wage you are effectively signing a blank cheque, agreeing to pay all your nanny’s tax and NI without taking into account her particular tax code or tax position. And it means it is you who could end up footing the bill for any unpaid tax and even her student loan, if she has one.
So before you do anything else – agree a gross salary with your nanny. If both employers follow this recommendation the nannyshare can be treated as two separate employments and is very straightforward from a tax and NI perspective. However, the reality is that net salaries are more or less the norm in this industry, and you are very likely to have been advised by your nanny agency – or convinced by your nanny – to agree a net salary. So what now?
First of all both families should register separately as employers. Although it is possible to register jointly and you may think it’s a good idea if the families are good friends, it’s actually more cost-effective to register separately as substantial savings can be made through reduced NI contributions. And not only that, if your circumstances change and the nannyshare dissolves, one family could end up having to cover all costs if you are registered jointly.
Once you have registered with HMRC you can then arrange to split the nanny’s tax code with the other family. Tax code splits are a phenomenon unique to the world of nanny employment, and although it requires the involvement of HMRC, the consent of the nanny and the cooperation of the other family, it is usually the best solution.
In order to split the tax code your nanny must send a letter, signed by all parties, to the local tax office and apply for the tax code to be split proportionately. It can sometimes take several weeks to arrange a tax code split, and they cannot be applied retrospectively.
You should also ensure that both families have separate contracts of employment in place with the nanny. If you know the other family and the nanny is going to care for all children at the same time, it’s also a good idea to sit down and sort out certain matters at the beginning.
Holiday arrangements are an area that usually requires some extra attention. The nanny is entitled to 4 weeks holiday per year, plus at least 4 of the bank holidays. When these should be taken is up to the employer, but when there are two sets of employers this can sometimes lead to conflict, so avoid tension later on by making firm arrangements at the start of the employment.
Finally you must also make sure that you both pay the nanny above the National Minimum Wage – currently £8.21 per hour for employees aged 25 and over.
If you want help with sorting out the tax and NI payments in your share, need more general advice, or you want to arrange a tax code split you can contact Nannytax, the UK’s leading payroll service for nanny employers and nanny shares specialists.