UK: How does taxation work when a nanny has two jobs?

When a nanny has two jobs, I feel the easiest way of doing taxation is for one job to be classed as the Primary job and the other job to be classed as secondary.

The primary job should be the one in which the nanny earns the most salary ideally, though it doesn't really matter as long as the salary is above the personal tax free allowance.

Employers of nannies should be agreeing Gross salaries, as is the situation in any other line of work.

An example of how it works for a nanny with two jobs:

Nanny working 10 hours per day, 3 days per week, being paid £10 gross per hour. No Student Loan Deductions, or any other special case such as being married or being a widow.
To help keep things simple: employees start date is 6 April 2009 and assuming that this is the nannies first job, so we have no tax to date to deal with.

Based on information in P49 for when no P45 is presented, persons only job, initial taxcode: 647L cumulative NICs Category A

Weekly Gross Pay: £300

Week 1
Earnings at the LEL (where earnings are equal to or exceed the LEL) £95
Earnings above the LE, up to and including the ET £15
Earnings above the ET, up to and including the UAP £190
Earnings above the UAP, up to and including the UEL £0
Total of employee's and employer's contributions £45.33
Employee's contributions due on all earnings above the ET £20.95
Employer's Contributions £24.38
Paydate: 10 April
The Col references below are for the PAYE form P11.
Col 2: 300, Col3: 300, Col 4a: 124.61, Col 5: 175.39, Col 6: 35, Col 7:35

Gross Pay £300
Employee NICs £20.95
Employee Tax £35

NET PAY £244.05

Employer's NICs £24.38

Total cost to the employer: £324.38 (Gross Pay + Employer's NICs)
Total payment to HMRC: £80.33


In Week 3 the nanny takes on another job. To keep the figures as similar as possible, will use 20 working hours at the higher pay rate of £15 per hour.
Thus in Job2 this nanny is working 20 hours at £15 per hour, thus earning £300 per week. BOX C on P46 has been ticked, so tax code is BR cumulative

Week 3 – Job2
Earnings at the LEL (where earnings are equal to or exceed the LEL) £95
Earnings above the LE, up to and including the ET £15
Earnings above the ET, up to and including the UAP £190
Earnings above the UAP, up to and including the UEL £0
Total of employee's and employer's contributions £45.33
Employee's contributions due on all earnings above the ET £20.95
Employer's Contributions £24.38
Paydate: 24 April
The Col references below are for the PAYE form P11.
Col 2: 300, Col3: 300, Col 6: 60, Col 7:60

Gross Pay £300
Employee NICs £20.95
Employee Tax £60

NET PAY £219.05

Employer's NICs £24.38

Total cost to the employer: £324.38 (Gross Pay + Employer's NICs)
Total payment to HMRC: £105.33

From this example you can see that the cost to the employer is the same £324.38
The amount paid to HMRC is different. The amount paid to the nanny is different.

In the example above, the second job is the same Gross Salary which makes it easier for us to be able to compare it with the primary job. In reality I would not expect the second job to be the same gross salary, though it is possible that it may happen.
In the second job, as the primary job is using all of the nannies tax free personal allowance, all of the income is taxed. This means that the amount deducted by the employer for the employees tax is higher. This is passed to HMRC by the employer, on the nannies behalf. As the gross pay amount is the same, the National Insurance Contributions are the same. As the gross pay amount is the same, each employer pays the same Employers National Insurance Contributions.

Employers of nannies SHOULD ALWAYS agree a Gross salary, not Net (take home pay). Agreeing a Net salary is very old fashioned in my view and will cause you as the employer grief in the long run, as your nannies taxcode can change during their time in your employment, plus tax rates can also change. As you can see from the example above, it does not matter if you are able to use any of the nannies personal tax allowance or not... the cost to you as the employer is the same regardless. The difference comes in the amount of tax you deduct from your nannies salary and pass on to HMRC.

This was prepared on 23 June 2009. Due to the way taxs work in the UK the figures in this calculation will be outdated at the next tax change (probably April 2010). However the principle remains the same.

Paying a Nanny - How do I go about paying a nanny?

It is important that you agree to pay your nanny a Gross salary, either as a monthly or yearly amount. A Gross salary means the amount before deductions for Income Tax and National Insurance Contributions (NICs).

Never agree a NET (take home pay) salary with your nanny. It can be very tricky to work out what your nannies real pay is if you agree a NET salary.

In the UK, you deduct Income Tax and NICs from your employees gross monthly pay and send that once every quarter (every 3 months) to HMRC. In addition as the employer you also pay Employers NICs.

There is a great website called ListenToTaxman.com which can help you get an idea of how much it will cost you to employ a nanny. The figures produced by ListenToTaxman.com are accurate but you should never use these figures for filling out PAYE forms. Please use the figures as a guide.

So what you may be wondering is PAYE. Well it is Pay As You Earn. It is the method of tax deduction that is used for all UK employees, as far as I am aware. You can find out further information about PAYE on the HMRC Website: PAYE Intro.

As an employer of a nanny you need to register with HMRC as an employer. They will then send you out a pack with most of the forms you will initially need, plus a CD-ROM (for Windows based PC's) which contains lots of other forms and help in electronic form. The CD-ROM also helps you file online PAYE returns.

If your nanny has come from a previous job, ask them for their P45. If they don't have that for some reason, they need to complete a P46 (which is on the CD-ROM or can be obtained from the HMRC Employers Helpline).

You will then follow procedures in P49 Paying Someone for the First Time. This will set the ball rolling as it were. P49 talks you through doing the first months payroll.

If doing all the payroll gets a bit complicated, or you would prefer someone else to produce payslips for you, then there are various nanny payroll companies who can help you. As a nanny I have found that PAYEforNannies is good.