Nannies guide to Tax, PAYE and National Insurance
What is PAYE?
All workers in the UK must, by law, contribute financially to the state. This is done by paying Income Tax and National Insurance through Pay As You Earn (PAYE) to Her Majesty's Revenue and Customs (HMRC). Tax and National Insurance are known as deductions and are calculated based on earnings.
Who is responsible for ensuring your Tax and National Insurance is paid?
Both you and your employer need to take responsibility:
The person employing the worker is responsible for making these deductions and paying what they have collected over to HMRC. So as a nanny, your employer is required to operate a PAYE Scheme and, on your behalf, pay your Tax, National Insurance and any other deductions that need to be made (such as Student Loan Repayments) to the government.
But don't just assume this is being done. This is your Tax and National Insurance, your money, your contribution to the state. It would be very wise to make sure that your employer is fulfilling their legal obligation regarding your earnings. You should be receiving a payslip every time you are paid showing your gross pay, all deductions made and your net wage (what you are 'taking home'). Your payslips are legal documents as well as proof, not only of your earnings, but that they are being declared.
What happens when Tax and National Insurance is not paid?
Well, not paying tax is a criminal offence which could land you and employer in a lot of bother if you are caught. You would have all the unpaid back tax to find the money for and your employer would have a lot of unpleasant administration. It could even end in dispute between you and your employer about where the responsibility lies for getting the unpaid tax up to date. Best avoided really.
Also avoid the temptation of ‘cash in hand’. Nice and easy in the short term, but long term it will affect your Statutory Rights such as Maternity/Sick Pay. Pensions and Redundancy would also be seriously affected, and you will have difficulty making mortgage or loan applications. Lenders require proof of earnings — in the form of payslips and P60s . . . which you won’t have if you accept cash in hand.
My employer has asked me to sort my own tax, can I do this?
In order to manage your own PAYE, you would have to be awarded self employed status by HMRC and unfortunately nannies do not generally meet the criteria for self employment. In rare circumstances HMRC will grant self employed status to a nanny but you will need to make an application and HMRC will assess your situation. Be wary of the employer who insists you sort your own tax. A good employer will accept their responsibilities and operate a PAYE Scheme for you.
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