Nannyshares and part-time nanny jobs are on the increase, as parents require more flexible forms of childcare. But if you do a nannyshare for two families or have more than one part-time job each week, it is important for both you and your employers to be aware of the tax implications. This is because neither type of work is taxed in quite the same way as full-time employment with one family.
Entering a share
The first pay issue you face in a nannyshare is whether one or both families will be formally registered as your employer. There are three different options here: a one set of parents becomes your employer. The second set of parents then reimburse them privately for their share of your tax and National Insurance (NI) liability.
b both sets of parents jointly become your employer and split the costs between them.
c each set of parents employs and pays you separately.
The obvious benefit of options a and b to your employers is that they only need to be responsible for one PAYE scheme between them and only need to provide you with a single payslip every week or month. This simplifies matters and saves them the extra time and cost of running two PAYE schemes, whether they use a payroll service or an accountant, or do it themselves.
You can earn yourself some brownie points by saving your employers some money. Because there are no employer's and employee's National Insurance contributions payable on the first 87 a week gross that you earn in each job, your employers could save themselves as much as 1,000 a year betwen them by running two entirely separate PAYE schemes, as in option c. From their point of view option c should definitely be their first choice. They are unlikely to be aware of this and will appreciate your drawing it to their attention.
Being taxed in this way doesn't affect your own future benefit entitlements in any way, and the savings you make for your employers might even translate into their offering you a more generous salary.
Another benefit of two separate pay arrangements is that if, as often happens, one employer drops out of the nannyshare at a later date, the other employer will already have their own PAYE scheme in place.
Two part-time jobs
Being paid under two separate PAYE schemes within a nannyshare is, of course, exactly the same set-up that you face if you do two separate part-time nanny jobs.
Although the threshold of 87 per week for NI contributions applies to each job you do, the 87 a week threshold above which you start to pay income tax can only be used once, no matter how many jobs you do. It is this difference between how tax and NI are calculated that raises different issues when it comes to calculating the tax that you pay.
There are two ways in which this tax-free element of your pay can be claimed: a by applying your entire current year's tax code (453L for a single person) to one of your jobs. This means you start to pay income tax from the first pound you earn in any other job you do concurrently. Your first job is considered by the Inland Revenue to be your main employment and other jobs are described as secondary employment.
b by splitting your tax code, which represents the tax-free element in your wage, between two employers. This is not suitable where one of the jobs is of much longer weekly duration than the other, such as four days a week and one day a week, but can be arranged with the Inland Revenue for, say, two days' work and three days' work a week.
Where your pay has been agreed on the basis of an agreed net wage rather than a gross wage, then splitting your tax code is the preferable option, since if one (main) employer uses up your whole tax code, then your second employer, having already agreed a fixed a net wage, is automatically liable to pay tax on the entire amount they paid when they come to 'gross-up' your wage to include tax and NI contributions. In other words, one employer ends up having to pay a disproportionate amount of your tax liability while the other, by using your full tax allowance, is paying less than they should.
The main drawback of splitting a tax code is that it can take as much as three months to arrange, as it requires the agreement and co-operation of at least four parties - both employers, yourself and the tax office where the PAYE schemes are registered. Your tax office will require your authorisation, as employee, to split your tax code, while your employers will have to communicate with one another to reach an agreement they are both happy with. If you have already been working for one of them for a while before you took the second job, they may resent having to give up some of your allowance, as your employment will now cost them more.
Since some nanny jobs are of short duration or simply don't work out, it's also possible that by the time the tax code split has been agreed by the Revenue, one or other employer will have dropped out of the arrangement, or you may have moved on.
The gross wage solution
But the reason why it was necessary to split the tax code in the first place was because wages had been agreed on the basis of a net wage. This is once again an example of how the widespread practice of agreeing nannies' wages on a net basis is against the interests of both employer and nanny.
If a gross wage had been agreed for both jobs it would make little difference to either you or your employers whether more tax was deducted from one job and less from another. It would make no difference to you if you took home a larger proportion of your wage in your main employment and paid more of your tax through your second job.
While it may be necessary for part-time or nannyshare employers and nannies to go through the convoluted process of splitting tax codes, a far more straightforward way to ensure that you are correctly taxed, and both your employers get a fair deal, is to agree a gross wage with both families in the first place. As there are many other advantages to the gross wage - such as automatically receiving the benefit of any tax cuts that the government of the day may introduce - this is the best solution to surviving the rather complicated workings of the UK tax system.
Stephen Vahrman is the proprietor of the payroll service Nannytax
