Great, you have decided that you want to employ a nanny. Now what? Well one thing you need to do is to register with HMRC (Inland Revenue) as an employer and learn how to run payroll – you nanny will want paying after all.
HMRC have produced a guide to paying someone for the first time P49 (PDF). It is quite a large document, at the time of writing it is a 5.6MB but it is well worth reading as it tells you how to go about taking on a new employee and operating the first month’s payroll run (you can do weekly payroll, though I suggest paying someone monthly as less times you have to run the payroll!)
The Employers CD-ROM has been replaced by Basic PAYE Tools which can help perform payroll tasks for up to 9 employees. For further information about the Basic PAYE Tools application, see the guide P49 and “What can Basic PAYE Tools do for me?” on the BusinessLink website.
You will need to register with HMRC as an employer, which can be done by phone or e-mail. Details of how to do that and what information they need from you can be found at HMRC: Register as an employer. HMRC staff may talk to you about Simplified PAYE. Having had many on-line discussions with an accountant about payroll, I will tell you what he told me… don’t use simplified, use full PAYE. Simplified sounds easier but in reality it can be harder and nannies can be paid above the earnings amount permitted so a lot of nanny employers need to use full PAYE anyway.
If you struggle with maths, form filling, or simply don’t have the time to be doing your own payroll there are many companies out there who will do the payroll for you. My boss has been usingPAYEforNannies for several years now and is perfectly happy with the service provided. As the nanny I like it that payslips arrive in plenty of time. If you will be using a payroll service, then before doing anything contact the payroll company and find out from them what they need you to do, such as registering with HMRC or if they handle everything for you. Payroll companies charge around £120 a year typically for handling payroll for one nanny. Some payroll companies will provide additional services, such as a legal advice phone line. Consider if you really need that as the fees charged by the payroll company may be quite a bit higher than a payroll company which does not provide a legal advice line. You may also find that you can get employment law and other legal advice via your home insurers advice line.
Has your employee (nanny) given you a P45?
If not, a P46 must be completed.
See P49 for details of how to get the starting tax code, from information provided on P46. The P46 must be sent to HMRC on the first payday, this is now done on-line. A lot of the payroll forms are now on-line based, so if you are not able to get good internet access then you may wish to consider using a payroll company to carry out the payroll function on your behalf.
The information from the P45 or the P46 will determine the starting tax code of your employee. The guide talks you through this using a flow chart and if you get stuck you can call the new employer helpline.
When paying someone you need to work out how much income tax, employee national insurance and employers national insurance are due. You must record this information each time you pay someone, using form P11 – you can do this using the PAYE Basic Tools.
You need to enter in the employees Gross pay for the period (so in the month, or week). Then any statutory payments that may apply, such as Statutory Sick Pay. Remember: Do Not Agree A NET Wage With Your Nanny. Net wages belong way in the past, these days all employees are paid Gross and taxation is calculated from the Gross wage, so it can be very difficult for you to operate payroll yourself if agreeing a Net wage. It is also like writing a blank cheque, as you never know how much it will cost you.
By law you must give your employee a payslip. You need to include details of the Gross pay, employee national insurance contribution, amount of income tax deducted, any other deductions and the resulting net pay figure – the amount they get paid into their bank account.
You don’t need to include other information, though it can be helpful to include things like who the employer is and employer reference number.
As the employer you are deducting Employee Tax and Employee NICs from your nanny on behalf of HMRC. You also have to pay Employers National Insurance. The Employers NI, Employee Tax and Employee NI are then sent to HMRC once every three months – so keep the money safe in a savings account so you don’t spend it.
To get an idea of how much these deductions will be for a given Gross salary, use a UK PAYE calculator.